Revenue Boost: Resorting to telecoms tax

The continuous challenge posed by oil theft and reduction in oil production quota may have informed government’s decision to resort to revenue from telecoms sector by adding a five per cent to call and data tarif, ABDULWAHAB ISA reports

This isn’t the best of times for government. While expenditures are doubling, revenue is receding and sliding simultaneously. Figures emanating from the official quarters, that is, the Federal Ministry of Finance, Budget and National Planning, National Bureau of Statistics (NBS) and the Central Bank of Nigeria (CBN) attest to government’s dire financial position. The country is among oil exporting nations, no doubt. A frontline and prominent player in the elite Organisation of Oil Exporting Countries (OPEC). As with every essential and attractive commodity that has its boom season, Nigeria has been unlucky on two sides of her prime commodity lately. Save for the gulf war in early 90s, which the nation made appreciable revenue rake from Gulf war, other scenarios after the Gulf war didn’t pan out well for the country and its economy. A case in reference is the subsisting Russia-Ukraine war, which ought to be a big cash out for Nigeria like every other oil exporter nation. Regretfully, the crippling state of the four existing refineries, which leaves the country feeding on imported oil refining products, unsustainable corrupt subsidy regime retention and humongous oil theft that rubs off on country’s revenue and cutting back on its production quota, is milking the country of the expected revenue as a leading oil producing nation.

Sliding revenue

The Federal Government is dealing with excruciating waning revenue, no doubt. Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, at the presentation of Medium Term Expenditure Framework and Financial Support Strategy paper MTEF/ FSP document) for 2023-2025; the occasion, which also served as unveiling of four months finance performance of 2022, decried high oil theft in the country. For instance, the 2022 fiscal performance report showed a receded revenue, a development that hampers government from executing expenditure obligations. In the fiscal report, the cost of servicing debt surpassed government’s retained revenue by N310 billion in the first four months of 2022. According to the report, the total revenue for the period was N1.63 trillion, while debt service gulped N1.94 trillion. Zainab noted with emphasis that urgent action was required to address revenue underperformance and expenditure efficiency at national and subnational levels. “The aggregate expenditure for 2022 is estimated at N17.32 trillion, with a prorata spending target of N5.77 at end of April,” the report reads. “The actual spending as of April 31 was N4.72 trillion. Of this amount, N1.94 trillion was for debt service, and N1.26 trillion was for personnel costs, including pensions. “As at April, N773.63 billion has been spent on capital expenditure. “As of April 2022, FGN’s retained revenue was only N1.63 trillion, 49 percent of the prorata target of N3.32 trillion,” she said. The document added that Federal Government’s share of oil revenues was N285.38 billion (representing 39 per cent performance), while non-oil tax revenues totaled N632.56 billion — a performance of 84 per cent.

Based on the figures, government generated N401.8 billion from company income tax (CIT) and value-added tax (VAT).

Oil theft

Nigeria is facing grand oil theft in the Niger Delta by local vandals and international criminal networks. The theft is leaving a gaping hole in the nation’s revenue purse. Nigeria, the 11th largest oil-producing country in the world, cannot meet the quota assigned to it by OPEC because of unparalleled oil theft. At this crucial time, the on-going Russia/Ukraine war, which other OPEC nations are maximising to rake huge oil revenue, is missing. The country is counting losses in the season of oil boom. Federal Government’s data put daily crude oil theft at about 400,000 barrels of crude oil. Minister of Environment, Mr. Mohammed Abubakar, at a recent town hall meeting on protecting oil and gas infrastructure, organised by the Ministry of Information and Culture in Abuja, said statistics had supported Nigeria as the most notorious nation in the world for oil theft. Also at the event, the Minister of Information and Culture, Alhaji Lai Mohammed, said about N60 billion was being spent yearly by the Federal Government to repair vandalised pipelines. He said the attack on oil facilities had become the innovation that replaced the agitation in the Niger Delta against the perceived poor governance and neglect of the region. Abubakar said: “The effect of vandalism of oil facilities has not only caused the nation’s loss of oil revenue, but the money that could have been used to develop education, health, housing and roads, among others. “Companies have also lost huge revenue as a result of the vandalism of the Trans Niger Pipeline, Nembe Creek Trunk Line and Trans Forcados Pipeline. “Nigeria has lost approximately N4.75 trillion in the four years between 2015 and 2018 according to the estimates by the Nigeria Natural Resources Charter. This equates to the Federal Government having lost approximately three per cent of its revenue to oil theft. “The several statistics emphasised that Nigeria is the most notorious country in the world for oil theft, which lost roughly 400,000 barrels per day dwarfing the second country, Mexico reported only 5,000 to 10,000 barrels per day. This is a difference of 3,900 per cent.”

Revenue option

Constrained by a dire revenue strain occasioned by oil theft and reduced production quota, government is attracted to the potentially huge telecoms sector where it hopes to slice a portion of its revenue, by initiating per cent cut from data and calls. Expectedly, the move is attracting varied opinions. One of the opponents of the new tariff hike on data/ calls is Mallam Isa Ali Pantami, Minister of Communication and Digital Economy. Zainab Ahmed had, however, countered her colleague, reiterating last week Federal Government’s unwavering push to implement the five per cent hike in tariff.

At a recent stakeholders’ forum in Abuja, organised by the Nigerian Communications Commission (NCC), the telecoms industry regulator, Ahmed, who was represented by the Assistant Director, Tax Policy, Federal Ministry of Finance, Budget and National Planning, Musa Umar, noted that the five per cent excise duty had been in the Finance Act 2020, but has never been implemented. In a statement issued by her Media Assistant, Mallam Yunusa Tanko Abdullahi, the minister averred that “henceforth, the five per cent excise duty will be collected by telecom operators and payment made to the federal government on a monthly basis, on or before 21st of every month.”

The minister justified why a hike in data and calls tariff would salvage the nation’s revenue challenge. She said: “Although Nigeria is celebrated as the largest economy in Africa, translating this wealth into revenues remains a challenge. Considering this in line with the provision of the revised National Tax Policy, which provides the framework for a sustainable tax system that would ensure reliable sources of revenue to government and support economic development.” Subsequently, in line with the Finance Act, the Federal Government introduced telecommunication devices provided in Nigeria to be liable to excise duty under Section 21 (2) of the Customs and Excise Tariff (Consolidation) Act, CAP. C49, LFN 2004. “Nigeria is one of the largest telecommunication markets in Africa.

Available reports from the NCC show four categories of operators, i.e. mobile (GSM), fixed telephony operators (fixed/ fixed wireless), internet service providers (ISPS) and others (operators other than mobile & fixed telephony, ISPs). “Subscriber number continues to grow substantially, having increased from about 180 million subscribers in 2019 to over 200 million active subscriptions in 2020. This represents an increase of over nearly 11 per cent in total subscriptions. “Moreover, many countries in sub- Saharan Africa such as Tanzania, Uganda, Malawi, Kenya, Rwanda, Ghana and Burundi currently impose excise duty on telecommunication services ranging between five per cent to 20 per cent,” the statement added.

In the month of May, telecommunication operators, under the auspices of Association of Licensed Telecommunication Operators of Nigeria (ALTON), had proposed a 40 per cent hike in call and SMS tariffs. They hinged their decision on rising cost of business in the country in a letter addressed to the Nigerian Communications Commission (NCC).

The letter said the fee for calls would increase from N6.4 to N8.95, while the price cap for SMS will increase from N4 to N5.61. The association said the telecommunications industry had been financially challenged by an economic downturn that occurred during the COVID-19 crisis in 2020 and the ongoing Russia-Ukraine war. They noted that the war had resulted in a 35 per cent increase in their operating expenses due to an increase in energy costs. ALTON added that the introduction of the five per cent excise duty on telecoms service providers had heightened the burden of multiple taxes and levies on the industry. “ALTON considers it expedient for the telecommunications sector to undergo periodic cost adjustments through the Commission’s intervention in order to minimise the impact of the challenging economic issues faced by our members,” it said. “Given the state of the economy and the circa 40 per cent increase in the cost of doing business, we wish to request for an interim administrative review of the mobile (voice) termination rate for voice; administrative data floor price, and cost of SMS as reflected in extant instruments.”

Last line

Given the revenue challenge (from oil source) facing government on one hand and pressure for increased spending, which continues to build up, government may locate a window in adjustment in call/data tariff as a way out.




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