Is the Taxman Sniffing Around for New Sources of Money?

Last week, the Minister of Communications in Nigeria announced that a bill was before the Senate and House of Representatives to enact a 9% tax. The Communications Service Tax would be imposed upon consumers for all voice calls, data services, SMS, MMS and Pay TV.

When I first heard of this, I thought how could any government impose a 9% tax on communication? Wouldn’t taxation impede the adoption and proliferation of the technology? Would this slow broadband penetration?

First, let me provide a little background. Nigeria is looking for new sources of revenue due to the depressed price of oil. Communication consumers are already paying a Value Added Tax (VAT) of 5%. So, the 9% would be on top of the VAT. It is estimated that this new tax would supply around N20 billion a month or N240 billion per year.

According to The Free Dictionary, a tax is “a contribution for the support of a government required of persons, groups or businesses within the domain of that government.” It defines a surcharge as “an additional sum added to the usual cost or amount paid.”

So, I pulled out my AT&T bill to see what my tax rate is. My bill reads as follows for two phone numbers, Surcharges and Other Fees-
 911 Service Fee $0.20
 AZ State Telecom Surcharge $1.61
 Administrative Fee $0.76
 City Telecom Surcharge $0.47
 County Telecom Surcharge $0.21
 Federal Universal Service Charge $1.63
 Regulatory Cost Recovery Charge $1.20
 Total Surcharges & Other Fees $6.08 for each phone number

For the first number at $50/month, I have an effective tax rate of 12%. For the second number at $25/month, I have an effective tax rate of 24%. This gives me a blended tax rate of 16+%. One might argue that these are not all taxes but they seem very similar to me. Could they just be a tax under another name?

All of the sudden, the VAT and the new tax do not look so onerous. With that being said, to impose a large aggregate tax could slow the adoption of cellular, broadband and pay TV. This may go at cross purpose with the International Telecommunications Union (ITU) mandate for Nigeria to achieve 30% broadband penetration by 2018. It currently has about a 10% penetration.

Nigeria has discovered the well stream of revenue that other governing bodies have found for new sources of money. It would appear that as the Nigerian government sniffs for new sources of revenue, it may be best to sniff in other directions so as not to stymie growth.

Let me know your thoughts. If you enjoyed this post, please recommend or share. You can read other posts from me on LinkedIn  More to come…

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