The recently proposed Communication Service Tax Act (CTA) by the Senate may have given the Nigeria Government another viable source of revenue but creates huge burden on consumers. The bill which has passed its first reading is said to establish the Communication Service Tax that will see all public electronic communication services attracting 9%.
The bill is being proposed in place of the government planned increase of Value Added Tax (VAT) from 5% to 7.5%, which will increase government revenue – the major source of revenue for the government (crude oil) is shrinking due to dwindling oil prices.
The bill was initially proposed during the 8th National Assembly in 2015 but met stiff resistance from industry operators. The bill will see the establishment of a tax called the Communication Service Tax which stipulates that a 9% tax be levied on communication services such as Voice Calls, Short Messaging Service (SMS), Multimedia Messaging Services (MMS), Data usage (from both Telecommunication Services Provider and Internet Service Providers), and Pay per view TV Stations; and will be paid by consumers alongside.
“Be it enacted by the National Assembly of the Federal Republic of Nigeria as follows: There is hereby established a tax to be known as the Communication Service Tax.
“…The tax shall be levied on the following Electronic Communication Services: Voice Calls, Short Messaging Service (SMS), Multimedia Messaging Services (MMS), Data usage from both Telecommunication Services Provider and Internet Service Providers, Pay per view TV Stations, etc.
“The tax shall be paid together with the Electronic Communication Service charge payable to the Service Provider by the user of the service.”
While this creates a revenue source for the government, it invariably increases the tax consumers pay for the items the proposed bill intends to tax.
The Nigerian Value Added Tax Act already placed a 5% tax on these items. These items captured by the bill are not part of items exempted in the VAT Act First Schedule titled ‘Goods and Services Exempt’.
“The tax shall be charged and payable on the supply of all goods and services (in this Act referred to as ‘taxable goods and services’) other than those goods and services listed in the First Schedule to this Act.
“The tax shall be computed at the rate of 5 per cent on the value of all goods and services as determined under sections 5 and 6 of this Act, except that goods and services listed under Part III of the First Schedule to this Act shall be taxed at zero rates.”
The excluded goods and services under Part III of the First Schedule includes:
- All medical and pharmaceutical products.
- Basic food items.
- Books and educational materials.
- Baby products.
- Fertilizer, locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment.
- All exports.
- Plant, machinery and goods imported for use in the export processing zone or free trade zone: Provided that 100 per cent production of such company is for export otherwise tax shall accrue proportionately on the profits of the company.
- Plant, machinery and equipment purchased for utilisation of gas in downstream petroleum operations.
- Tractors, ploughs and agricultural equipment and implements purchased for agricultural purposes.
What this means
Although Senator Ali Ndume said the proposed tax will in a way distribute wealth, that it would not affect the ordinary people. On the contrary, ordinary people use these services too.
Every Voice Calls, SMS, MMS, Data usage, and Pay per view TV service already have a VAT of 5% as stipulated by the VAT Act. If the Communication Service Tax is added, consumers will end up paying 14% tax (VAT 5% and CST 9%). That means for every N1,000 airtime you buy as a subscriber 14%, which is N140, will be tax-deductible. Pay per view and on-demand platforms like DStv and iRoko TV might increase its subscription fees. Small businesses will suffer the most as they greatly rely on these services.