ATCON Rejects Federal Government’s Proposal for 5% Excise Duty on Telecommunications

By DAYO ADESULU

Association Warns of Negative Impact on Industry and Consumers Amid Economic Challenges

The Association of Telecommunications Companies of Nigeria (ATCON) has firmly rejected the Federal Government’s plans to reintroduce a five percent excise duty on the telecommunications sector. The association warns that this move could impose significant burdens on the industry, potentially leading to higher costs for consumers.

Background on Excise Duty Suspension

On July 6, 2023, President Bola Tinubu signed four executive orders, one of which suspended the previously imposed 5 percent excise tax on telecommunications services. This decision was intended to mitigate the adverse effects of tax increases on businesses and households alike.

However, recent indications from leaders of the Presidential Tax Reform Committee suggest that the proposed Nigeria Tax Bill 2024, currently under consideration by the National Assembly, includes provisions for reintroducing excise duties on telecommunications, as well as other sectors such as gaming and betting. The excise duty is set to be calculated based on the charges of service providers.

Concerns Over Timing and Impact

In response to the proposed tax, ATCON expressed serious concerns, emphasizing that the new excise duty would likely hinder growth in a sector crucial to Nigeria’s digital economy. ATCON President Tony Emoekpere criticized the timing of this proposal, especially amid ongoing economic challenges facing the country.

Emoekpere stated, “We had received assurances from the former minister that this issue was settled. It’s alarming to see it re-emerge now, particularly as the industry has been advocating for a tariff increase to manage rising operational costs. Instead, we are confronted with a price hike that provides no benefit to the industry.”

Engagement with the Ministry of Communications

ATCON plans to engage with the Ministry of Communications to address the unexpected resurgence of the excise duty proposal. Emoekpere noted, “The previous minister had successfully shelved this idea, so it’s surprising to see it come up again. We will reach out to the ministry to understand the rationale behind its reappearance and work to prevent its implementation.”

Call for Government Support

Beyond opposing the excise duty, Emoekpere urged the federal government to prioritize support for the telecommunications sector, which plays a vital role in the national economy. He emphasized that the government should focus on reducing operational costs rather than imposing new taxes.

“One of our biggest challenges is the heavy reliance on diesel to power telecom infrastructure. With the recent liberalization of the foreign exchange market, diesel costs have skyrocketed. Currency fluctuations directly impact the price of petroleum products, placing tremendous financial strain on the industry,” he explained.

Recommendations for Relief and Local Production

To alleviate these challenges, Emoekpere called for the government to provide tax relief or incentives and to promote local production of essential telecom inputs. He concluded, “If the government is unwilling to allow tariff increases, they should at least offer tax breaks or support for local production. Additional excise duties will only worsen the challenges facing an already strained industry.”

The situation regarding the proposed reintroduction of a five percent excise duty on the telecommunications sector in Nigeria has several layers of implications, both for the industry and the broader economy. Here’s a deeper look into the context, potential impacts, and the responses involved:

Context of the Excise Duty Proposal

1. Historical Background: The excise duty on telecommunications services was initially introduced as a means for the government to generate revenue. However, in light of economic pressures and the need to support businesses, especially during the recovery from the COVID-19 pandemic, President Bola Tinubu suspended this tax in July 2023.
2. Current Economic Environment: Nigeria is currently grappling with significant economic challenges, including high inflation rates, fluctuating currency values, and rising operational costs for businesses. The telecommunications sector, which has been a significant contributor to the country’s GDP, is particularly vulnerable to such economic pressures.

Implications of the Excise Duty

1. Impact on Consumers: The reintroduction of the excise duty could lead to increased costs for telecommunications services. This would likely affect consumers directly, as service providers may pass on the tax burden through higher fees, making communication services less accessible, particularly for low-income households.
2. Effect on Industry Growth: The telecommunications sector is vital for Nigeria’s digital economy, facilitating access to information, education, and economic opportunities. Imposing additional taxes could stifle growth and innovation within the industry, limiting the ability of telecom companies to invest in infrastructure and expand services.
3. Job Creation and Economic Development: The telecommunications sector is a significant source of employment and has the potential to generate further jobs through investments in technology and infrastructure. Increased taxation could hinder this growth, leading to job losses and reduced economic development.

Responses from ATCON and the Industry

1. Engagement with Government: ATCON’s proactive stance in engaging with the Ministry of Communications reflects an effort to advocate for the interests of its members and the telecommunications industry at large. By seeking clarification and pushing back against the reintroduction of the excise duty, ATCON aims to influence policy decisions that affect the sector’s sustainability.
2. Calls for Support: ATCON’s leadership has emphasized the need for the government to prioritize support mechanisms over punitive taxes. This includes calls for tax breaks, incentives, and fostering local production of telecommunications equipment, which could help mitigate dependence on foreign imports and reduce costs.
3. Operational Challenges: The rising costs of diesel and the impact of currency fluctuations have exacerbated operational challenges for telecommunications companies. With many providers relying on diesel generators for power, especially in areas with inconsistent electricity supply, any increase in operational costs can significantly impact profit margins.

Broader Implications for Nigeria’s Economy

1. Digital Economy Growth: The telecommunications sector is crucial for supporting Nigeria’s ambitions to enhance its digital economy. High taxes could deter investments that are essential for expanding internet access and improving digital services, which are vital for economic diversification.
2. Government Revenue vs. Industry Viability: While the government seeks to enhance its revenue through taxation, there is a delicate balance to strike. Over-taxation could lead to a shrinking tax base if companies reduce operations or exit the market due to unsustainable costs.
3. Public Sentiment and Trust: The government’s approach to taxation and its responsiveness to industry concerns can significantly influence public trust. If stakeholders perceive that the government is not considering the broader implications of its policies, it could foster discontent among consumers and industry players alike.

Conclusion

The debate surrounding the proposed excise duty on telecommunications in Nigeria highlights the complexities of fiscal policy and its impact on essential services. As ATCON prepares to engage with government officials to advocate for the industry’s interests, the outcome of these discussions will be critical not only for the telecommunications sector but also for Nigeria’s overall economic health and digital transformation efforts. The situation remains fluid, and ongoing dialogue between the government and industry stakeholders will be essential to navigate these challenges effectively. If you have more specific areas of interest or questions, feel free to ask!