Communication Tax Will Increase Taxation Burden, Says Afrinvest

• Explains CST to fetch less than N545.1bn extra from consumption tax

Obinna Chima

The Communication Service Tax (CST) Bill, which is presently being considered by the Senate, has been described as “another misadventure” which would further place burden on Nigerians.

Analysts at Afrinvest West Africa Limited said in a report that it would also worsen the issue of multiple taxation in the country.

The 2019 version of the bill, which was first introduced in 2016, passed the first reading in the Senate last week.

The bill proposes a nine per cent CST to replace the planned increase in Valued Added Tax (VAT) from five per cent, to 7.5 per cent by the federal government.

The CST when passed into law would be levied on the consumers of voice calls, MMS, SMS, data usage and Pay per View TV services provided by mobile telecommunication and internet service providers.

But analysts at the research and financial advisory firm stated that, “In our opinion, the CST would overburden consumers who already bear five per cent VAT on telecommunications services.

“As Nigeria plans to boost digital connectivity and derive the attendant benefits, this could slow progress as consumers readjust spending patterns given the level of poverty in the country.

“For the telecommunications sector, the proposed CST worsens the issue of tax multiplicity. In addition to existing taxes, companies would bear increased costs of compliance and lower patronage as consumers react negatively to new taxes.”

They said with the sector contributing 1.2 per cent to the real Gross Domestic Product (GDP) growth of 1.9 per cent in the second quarter of 2019, there was the prospect for even slower economic growth.

Similarly, they noted that considering that the penetration of telecommunications services was lagging in rural areas, the planned tax would slow progress towards expanding national coverage.

“This could have negative implications for financial inclusion which is expected to be driven by mobile money services. 

“We do not expect the CST to generate as much as the proposed VAT of 7.5 per cent which we conservatively estimate to bring in additional N545.1 billion as VAT revenue.

“Looking at data on the sectoral distribution of VAT collections, we discover that VAT from professional services, which includes collections from the telecommunications sector, was N86.3 billion in 2018.

“Revenues from the CST of nine per cent would clearly fall short of the federal government’s expected increase in VAT, even without considering the changes to consumer demand and growth in the sector,” the report added.

It stated that its analysis of the 2019 budget performance in half year showed the federal government’s deficit continued to rise given the slow increase in revenue.

Between January and June 2019, the Federal Government incurred a deficit of N1.3 trillion, which was 63.5 per cent of its proposed budget deficit (N2.1 trillion), it noted further.

The actual revenue collected has been weak at N2 trillion or 29.2 per cent of total proposed revenue (N6.9tn) for 2019, meanwhile government’s expenditure was N3.4 trillion or 37.2 per cent of total planned spending. 

“The recent raft of aggressive initiatives to boost tax collection is motivated by government’s unsustainable fiscal position.

“This is becoming increasingly fragile in the face of large spending on subsidies and weaker for longer oil prices as well as production.

“However, we believe the strategies to boost revenues should be better coordinated and should be part of a comprehensive reform package that harmonises taxes, widens the tax net, reins in recurrent spending, reduce costs of compliance and eliminates spending on petrol subsidies.

“We believe the FG’s approach towards taxes could affect economic growth and dampen the investment climate, with negative implications for tax collections,” it added.