Introduction

With  elections  looming  and  the  need  to  deliver  on  earlier campaign promises, there is renewed revenue generation drive by all tiers of government. The telecommunications industry is a major source of tax revenue for governments1 and operators are frequently subjected to audits by tax authorities to confirm compliance with their tax obligations.2 However, taxes and levies on operators in the telecommunications sector impacts on the services provided by operators in terms of service adoption, pricing, investment decisions, quality and affordability of services. There is an intrinsic link between high taxes and levies and investments in infrastructure and equipment by operators, quality of services and the affordability of the service by the subscribers.

Multiple Taxation and Regulation

As a result of the nature of their services, telecommunications services providers have presence in different locations across the country in order to provide services and support to their subscribers. This sometimes leads to  conflicts  with  several  governmental  agencies, communities and tax authorities on the taxes and levies payable on their operations. The National Tax Policy defines tax as ‘’any compulsory payment to government imposed by law without direct benefit or return of value or a service whether it is called a tax or not’’4 and further provides that there is multiple taxation where ‘’the tax, fee or rate is levied on the same person in respect of the same liability by more than one State or Local Government Council.”

The Taxes and Levies (Approved List for Collection) Act 1998 Act No. 21, Cap T2 Laws of Federation 2004, provides a list of taxes and levies that the various levels of governments in Nigeria can collect. In 2015 and pursuant to the provisions of the Act, the Minister of Finance issued the Schedule to the Taxes and Levies (Approved list for Collection) Act (Amendment) Order 2015. Ironically, even though the expectation was that this action would simplify the taxes and levies, it further compounded the issues  by increasing the  list  of taxes  from 39 items to 55.

The tax burden of a typical telecommunications service  provider  includes not  just the  general taxes and levies imposed on all companies in the country, but also a myriad of sector-specific and  other  “bespoke”  taxes  and  levies  that further reduces their profitability. The concerns are not just on sector specific taxes and levies but the imposition of duplicated taxes by different tiers of government. 

General Taxes and Levies

These are the usual taxes and levies imposed on every company  incorporated in Nigeria.  They are backed by law and all companies are: National Housing Fund1Contributory Pension Scheme14, Customs Duties15, Tenement Rates/Land Use Charge16, Business Premises Registration  Fees,1Town Planning and Building Permits18, Infrastructure Maintenance Charges19, Signages and Mobile Advertisement,2Aviation Clearance Permit Fees,2Environmental Impact Assessment/ Audit fees22.

The combination of these taxes and requirements to contribute to funds, compensation and pension schemes can be substantial outgoings by companies and impact their profitability.

Sector Specific Taxes and Levies

In addition to the general  taxes  and  levies certain sector specific taxes and levies are further imposed on operators.

Annual Operating Levy (AOL)

This is an annual levy payable to the Nigerian Communications Commission (NCC) by all holders  of  Individual  Licences  issued  by  the NCC.  The  NCC  has  published  the  AOL Regulations  2014  to  provide,  amongst  other required  to  comply  with  the  provisions  of  the law in this regard. These taxes include Companies  Income  Tax,the Capital Gains Tax6, Withholding Tax7, Personal Income Tax8, Stamp Duty9, National Industrial Training Fund (NITF)10, Employees Compensation Scheme11, The Tertiary Education Trust Fund (TETFUND)National Housing Fund13  Contributory Pension Scheme14, Customs Duties15, Tenement Rates/Land Use Charge16, Business Premises Registration  Fees,17 Town Planning and Building Permits18, Infrastructure Maintenance Charges19, Signages and Mobile Advertisement,20 Aviation Clearance Permit Fees,21 Environmental Impact Assessment/ Audit fees22.

The combination of these taxes and requirements to contribute to funds, compensation and pension schemes can be substantial outgoings by companies and impact their profitability.

Sector Specific Taxes and Levies

In addition to the general taxes and levies certain sector specific taxes and levies are further imposed on operators.

Annual Operating Levy (AOL)

This is an annual levy payable to the Nigerian Communications Commission (NCC) by all holders of Individual Licences issued by the NCC. The NCC has published the AOL Regulations 2014 to provide, amongst  other things, a framework for the effective and efficient administration of the levy. The Regulation provides that AOL for a Network Operator is to be assessed at two and a half percent (2.5%) of the operator’s net revenue. Non-Network Operators are asessed at one percent (1%) of their net revenue.

The National Cyber Security Fund

The  Cybercrime  (Prohibition,  Prevention  etc) Act 2015 provides for the establishment of the National Cyber Security Fund (the Fund).23  The contributors to the Fund as specified in the Act include ‘’GSM service providers and all telecommunication companies” and internet service providers.24 They are required to directly remit a levy of 0.005 per cent of all electronic transactions undertaken by them to the Fund which is to be domiciled at the Central Bank of Nigeria. The office of the National Security Adviser is required to keep proper records of the monies in the Fund.

National Information Technology Development Fund (NITDF) Levy 

Generally referred to as the Information Technology(IT) Tax and managed by the National Information Technology Development Agency (NITDA) pursuant to the NITDA Act.25  It is payable by the companies specified in the NITDA Act, 26 (inclusive of telcos and ISPs) with a turnover of (One Hundred Million Naira) N100 million naira (approximately $328,000.00) and above. The amount payable is one percent (1%) of the profit before tax of each year of assessment.27 Contributions  to the NITDF are tax deductible for income tax purposes.28

Right of Way Charges

There have been several unsuccessful attempts by the Federal government to have an effective, standardized  national right  of way  acquisition process and fee.29 In an attempt to provide clarity the Federal Government in 2012 approved Right of Way fees for access to federal highways. The Lagos State Government has also fixed Right of way charges at five hundred (500) naira per linear metre of optic fibre laid. Other states however charge wildly differing rates, ranging from N500 to N4000 per linear meter.

In addition, States have continued to insist on a right  to  demand  and  receive  Right  of  Way (RoW) for Federal Highways, bridges and similar infrastructure running through their  States based on their interpretation of the Supreme Court decision in Attorney General of Lagos State and ors v Attorney General of the Federation & Ors3where the court affirmed the right of the States to regulate physical planning and development control of land within their states.

In addition, Section 135 of the NCA recognizes that operators may require State and or local government approvals in erecting or maintaining network facilities. This is notwithstanding the fact that ROW fees might have already been paid to the Federal Government for access to federal highways. Further complicating matters are the frequent disputes between the Federal Ministry of Works and the National Inland Waterways Authority (NIWA). The latter demands RoW fees on bridges and other infrastructure built by the former, and on which the former has already charged RoW fees, on the grounds that such infrastructure passes over waterways over which they have jurisdiction. Added to the mix is the fact that State Waterways Authorities often bill for the same routes as NIWA. So to install  network  infrastructure on bridges running across federal highways, operators might be required to pay ROW fees to the Federal Government, State Government, NIWA and State waterways authorities.

Conclusion

The operators allege that there are over 38 different taxes and levies on their operations by the various tiers of government in Nigeria and different government agencies and this they consider a threat not only to their businesses but a threat to further investments in the industry. Government clearly has a right to impose  taxes on businesses  that operate and benefit  from  the  public  amenities, infrastructure  and  social  services  it  provides. The expectation however is that a balance can be struck between the legitimate expectations of government and the certainty and fairness businesses expect for them to pursue and achieve their business objectives. Taxes in the telecommunications industry should be aligned with other industries and in line with international best practices. Uncertainties over taxes and levies affect investment decisions and the anticipated taxes and levies are expectedly built into the cost of services and products and ultimately passed on to subscribers.