The Proposed Communication Service Tax (CST) – Taxing our way out of poverty

Information and data unarguably drive the present and future worlds. The services provided by telecommunication companies and cable television are a need for every sector of society.

We have come to a point where we cannot do without telecommunications and data. It is our blood. People living far from healthcare specialist facilities communicate with healthcare care providers. People now wait shorter times in clinics because fewer people visit hospitals physically these days as more people patch calls through to doctors for less severe cases.

We communicate with people both far and near whenever we want. In business, telecoms and data are used to aid purchases, sales, win contracts, hold business meetings, seal deals, etc. It is easier to work from home or from any part of the world because of telecommunications.

For academia, almost any information is only a click away. People attend classes and examinations from thousands of miles, saving time and money via the Internet.

Nigerian economy and any other economy on earth will crumble if telecommunication goes dark. From aviation to agriculture to the capital market and military operations just to name a few.
As of August ending, Nigeria had a Teledencity (number of active telephone connections per hundred inhabitants expressed in percentage) of 92.67%, a broadband penetration of 67,009,771 (about 35.1%) and total Internet subscriber data of 122,975,740. Source

The Nigerian Senate recently revisited the issue of the controversial Communications Service Tax (CST) which aims to tax nine percent (9%) on communication services and pay-per-view Television services. The Communications Service Tax (CST) Bill was sponsored by Senator Ali Ndume, representing Borno South Senatorial District, as an alternative to increase in VAT from 5% to 7.2%, proposed by the Federal Executive Council (FEC). Many Nigerians had kicked against this increase.  The CST was first introduced at the National Assembly in 2016 but deliberations on the CST were stalled due to uproar from Nigerians.

By virtue of the CST, communication services like voice calls, SMS, data usage (from Internet service providers and telecommunications service providers) and pay-per-view television services will be taxed. The consumers of these services will bear the brunt of the tax.

Section 1 of the Bill reads in part, “There shall be imposed, charged, payable and collected a monthly Communication Service Tax to be levied on charges payable by a user of an Electronic Communication Service other than private Electronic Communication Services. The tax shall be levied on Electronic Communication Services supplied by service providers.” 

If this bill sees the light of day, what does it portend? For every recharge made, there is already in existence five percent (5%) Value Added Tax (VAT). An additional nine percent (9%) Communication Services Tax makes the total tax sum up to fourteen percent (14%). This increase reduces the purchasing power of the consumers because they will have to pay more for less talk time and data. Already, it is believed that Nigerians pay one of the higher costs for voice calls and data.

There are about one hundred and seventy-five million (175,000,000) active subscribers in Nigeria according to Nigeria Communications Commission (NCC). This number implies that individuals and businesses rely on telecom to communicate and transact businesses. If the bill is signed into law, that number may probably remain the same, but the activities within that huge number will reduce because consumers will want to cut cost as much as possible.

Furthermore, for Nigeria to increase revenue, she has to produce more in other sectors of the economy. The CST bill will increase the cost of production, albeit marginally. The producer’s goal is to maximize profit. An increase in communication tax will cut into the producer’s profit no matter how little. The producer will naturally shift that shortfall to the consumer. When that happens, price levels of goods and services will jump and when that happens, the consumption level goes down. 

Consequently, Foreign Direct Investment could be impacted. Elsewhere, tax cuts are considered a favorable measure in positively stimulating the economy. Given the very harsh business environment here, where the investors provide electricity, move goods and services on terrible roads, bottlenecks and ridiculous shenanigans at the only seaport functioning near capacity in the country, an unfavourable tax policy is the last thing they need, especially if it could agitate the consumer. The Nigerian National Tax Policy (NTP) provides that improving revenue generation should be achieved by expanding the overall revenue base and improving the tax structures at all levels of government and not by increasing taxation.

Finally, in spite of the huge number of active subscribers, there are rural areas in Nigerian that are yet to have mobile telecommunications penetration even after two decades. Many in this sector may see this bill as a deliberate attempt to slow their expansion and get more people in the rural areas involved. The benefits mobile telecommunications brought to many parts of the country may well take some time to reach certain parts.

Nigeria’s major revenue generator for the best part of five decades has been crude oil export. Almost every administration whether military or civilian has promised to diversify the Nigerian revenue base of the economy from crude oil export to other sources. Every one of them has failed and disappointed. With an estimated population of about two hundred million people, a drop in oil prices, poor infrastructure across board, terrible social services, just to mention a few, there is no gainsaying here, that Nigeria urgently needs to boost its revenue to face the crippling challenges of the time.

To put the dire situation of Nigeria into perspective, South Africa’s budget for the 2019 fiscal year is about R1.83 Trillion, which is about $122 Billion. With a population of about fifty-eight million people, this budget is hardly enough. Now, compare that with Nigeria’s budget of about $25 Billion for a population of two hundred million. Do you see?

Sadly, rather than try to see how to encourage the ICT sector as one of the drivers of the economy. the recent measure seems to stifle it. The current administration has identified taxation as a potential avenue to shore up its revenue base and is aggressively seeking for ways to do so. President Muhamadu Buhari, in his independence day speech this year, tasked revenue-generating agencies to meet targets or be sanctioned. One of those ways may perhaps be through the CST. Chairman of the Federal Inland Revenue Service, Babatunde Fowler, in an interview with The Cable, said, “I will put it this way, Nigerians talk a lot on the phone; they even talk more than required so for them to have capacity or revenue to talk that much, I don’t see any harm in paying a little bit more to government.” 

Winston Churchill famously said, “I contend that for a nation to try to tax itself into prosperity, it’s like a man standing in a bucket and trying to lift himself up by the handle.” This proverbial man obviously will remain stuck. He will not move his weight by the handle of that bucket.

Taxing our way out of poverty is definitely not the answer. There should be a genuine desire and drive to get other sectors of the economy working full throttle. This should become a working mantra and not a  cliché.

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