Fitch: Why Nigeria Needs To Streamline Its Telecoms Tax Landscape

Despite Nigeria’s positive move in abandoning the proposed telecoms tax increase in July 2023, the sector’s tax obligations remain operationally complex, BMI, a Fitch Solutions company, has said.  

The global firm stated that this had made the sector expensive to navigate, especially for operators looking to modernise the country’s digital infrastructure.
To address this challenge, the report stated that operators had voiced the possibility to abandon the existing nationwide tariff structure and adjust retail prices for calls, data and Short Message Service (SMS) services based on the user’s location.

Coupled with high inflation, the price adjustments, it said were likely to impact consumer confidence leading to unease among the public and confidence in the sector.

The report recalled that Fitch had previously outlined the positive implications of abandoning additional tax regimes on telecom regulators in July 2023.
The taxation system as it applies to the sector, the research firm said, remains complex, with different rules in force across the states and 46 separate taxes applying to operators in the market.

In November 2019, the government had launched the National Digital Economy Policy and Strategy (2020-2030), aimed at promoting digital technologies and diversifying the economy away from its historical dependence on the oil and gas sector.

According to the agency, Nigeria however, scores 63.1 out of 100 points in the Sub-Saharan Africa Telecommunications Industry Risk Index, above the regional 45.4-point average.

On the upside, the National Communications Commission (NCC), it noted, facilitated a smooth 5G auction process, pushing the digitalisation objective and welcoming a new player into the market,
It stressed however that the high spectrum prices of up to $274 million per operator – had added debt to already impacted balance sheets.
Fitch stated that taxation adds to operators’ concerns, but explained that nevertheless, the market achieved a 54.1-point overall rewards score, above the 41.3-point regional average.

According to Fitch, this was based on the growing youth population keen to utilise premium data and mobile banking services that are a critical source of revenues to operators.

“Our Country Risk team believes that the rising cost of living in Nigeria will increase the risks of economically disruptive protests and strikes over H2, 2023.
“While the government will adopt support packages to cushion households and businesses from decade-high inflation, these measures will fall short of demands set forth by Nigeria’s powerful trade unions.

“Despite an anticipated increase in strike activity, we do not believe that the President Bola Tinubu administration will re-introduce the fuel subsidy, and we expect reform momentum to remain strong as the new president consolidates his authority.

“The July 2023 abandonment of the telecoms tax hike signals that the president is unlikely to increase the tax in the short-term. Our Country Risk team also believes that the administration will look to streamline tax administration and processes, but whether this will go as far as telecoms – which is now a major source of income for the treasury – remains uncertain,” the report added.

But Fitch pointed out that the price hikes, however, are likely to add to the public unrest in the country as recently evidenced in Burkina Faso and throughout the Sub-Saharan Africa region.

Emmanuel Addeh 

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