9% Communication Tax: Soft Land for OTT To ‘Knife’ Telcos

The proposed nine per cent tax on communications services by the Federal Government has variously attracted more ‘nays’ than ‘ayes’ from different quarters. It is expected owing to the fact, if the Bill scales through, 145.4 million active telephone lines (users) as at June 2016, will be affected.

Specifically, the Communications Service Tax” (CST) is proposed to be a nine per cent charge for the use of the communication service (Section 4 of the Bill), where communication service refers to voice, SMS, MMS, data, and pay per view TV; with focus on internet affordability; i.e., data costs, it is obvious that the tax is to be borne by all consumers.

Barrister Adebayo Shittu, minister of Communications has at different fora, labouriously explained to who cares to know that the goal of the proposed CST is to improve revenue generation as stated in Explanatory Memorandum of the Bill; in fact, the target is pegged at somewhat N20billion (monthly). Well, government should consider other alternatives and not try to further harm an industry that is already bleeding.

On one hand, the National Assembly should reconsider the passage of the CST bill. However, if the tax must be introduced the government must consider a lower tax rate that enables it to achieve fiscal, for instance, revenue targets without undermining broadband affordability and access. Besides the fact that subscribers are going to bear the cost, telecommunication operators will definitely become more vulnerable, particularly now that Over-The-Top content (OTT) providers are already pushing their (telcos) revenue downward which will make an already bad situation worse ultimately leading to further job losses. So, the Bill is a sort of robbing Peter to pay Paul.

Many people have predicted that subscribers will bear the full blunt. True as that sounds, I align with the school of thought that OTT platforms will provide a leeway. Yes, instead of paying a set amount to send a message via the regular service providers- MTN, Glo, Etisalat, Airtel or NTel, smartphone users will cleave more to apps like WhatsApp, WeChat, Viber, Facebook, Twitter, IMO, etc., all of which boast large customer bases and offer innovative features like the ability to send pictures and videos, seamlessly. Telcos own the network, but companies like Google, Facebook can pull surprises on them, should they think of yanking off OTT services from their network. In other words, the nine percent communications service tax as proposed spells more doom for the operators.

Ajay Sunder, Frost and Sullivan analyst, said the shift is hitting markets all around the world.

"Definitely in the developed economies we're already seeing a trend of declining SMS revenues. But even in emerging economies, like Indonesia, some of the operators are already seeing the impact of OTT apps on their voice and SMS revenue. With Thailand, for example, the minutes of usage of the top three voice providers actually declined close to 4 percent when Line was introduced in 2011."

Recently, during a Fecebook conversation, Rev’ Sunday Folayan, president of NiRA, sarcastically stated and I want to believe with him that “A lot of people will move to OTT services and the providers will lose significant revenue. Many are not making 9% profit right now. They creatively cheat the end users. The proposed 9% Telecommunications tax in Nigeria is the confirmation of the transliterated Yoruba adage that says ... The sheep, saw docility, before snatching the meat from the carnivore.

“Communication Companies in Nigeria cannot see the need for the proposed tax given the fact that the nascent industry should be cultured to enhance the country's GDP right now, instead of milking it at infancy. Do not be blinded by the MTN Infraction”.

Nurudeen Sulieman nodded in agreement saying, “True talk. With all this 5GB data for 50 Naira Promo you hear every day, GSM operators are now operating like banks, they give sales target not just to the marketing staff, even the few technical staff they have left, as most of their infrastructure and switches have been passed over to a third party for operations and maintenance. ‘Kai’ ‘wetin this people they think self’, when NCC just announce that telephone operators have lost almost 50% of their subscribers.

“I understand the minister is so excited that his ministry will be generating 2 Billion Naira monthly from that tax...Apart from the fact that the target is not achievable because end user will drop by a margin unimaginable, whatever money they generate from the 9% tax will end up as social security stipend for a sizable workers that will be laid off by the same Telecom industry that are targeting. It will also be double jeopardy, because the normal tax will also drop due to low turnover by the operators. I beg make them think am well”.

Alliance for Affordable Internet (A4AI)-Nigeria Coalition in a document released recently, raised critical issues concerning compliance and how it will impact the telcos operations.

A4AI‎ said, "Compliance and responsibility for collecting payments placed on mobile operators. Compliance is likely to add a number of operational costs to operators. For example, rather than annually, all service providers are to file tax returns and pay the tax due not later than the last working day of the month immediately after the month to which the payment relates. So while the 9% tax is to be paid by consumers, analysis points to the fact that they will likely become additional burdens placed on operators as their operational costs will further rise.

While the impacts of the CST on the sector as a whole are major, the above analysis shows the direct, possibly unintended, impact on the consumer and specifically those in low-income groups and women, hence balanced fiscal policy must consider affordability of mobile broadband and should not put in place additional barriers that make Internet access unaffordable for millions of Nigerians.

In the words of Ken Nwogbo, Publisher, Nigeria CommunicationsWeek, "Discontinue the Controversial ICT Tax Now" and I'd simply add I CONCUR!

CFA is the founder of www.techsmart.ng and co-producer/presenter of Tech Trends on Channels TV