Multiple Taxation May Cause Capital Flight In Telecom Sector

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In the past few months, unease has enveloped the Nigerian telecommunications sector especially the service providers with the avalanche of notices from various local and state governments and their agencies seeking to collect levies and taxes from the service providers.

The rate at which the demands are coming is making the industry where jittery and somewhat confused about the federal government’s policy of attracting future investments into the economy.

This development regarding various spurious taxes and levies portends grave dangers for the sector. Already 12 states and the Federal Capital Territory (FCT) Abuja have been identified among the leading advocates for multiple taxations against telecom service providers which run into hundreds of billions of naira.???

According to Mr. Okey Itanyi, Executive Commissioner, Nigerian Communications Commission (NCC) and Chairman of the Industry Working Group (IWG) on multiple taxations in the telecom sector, the situation is threatening the survival of the telecom operators as investors may be forced to look else? where by divesting from Nigeria which may threaten the already inconsistent quality of services on the network.

Itanyi said: “The country may lose the gains and confidence achieved so far in the last couple of years. The industry still requires investments in network infrastructure to ensure full access across the country, and to guarantee good and acceptable quality of service which has become a major challenge”, he said.

The Industry Working Group on Multiple Taxation in the Telecommunications Industry (IWG) which derives its membership from the regulatory agency, operators and the subscribers, has the mandate to articulate the position on dangers of multiple taxation and engage relevant levels of government with the aim of stopping the imposition of illegal taxes and levies on the telecoms operators in view of their grave socio-economic implications.

Outrageous Levies From States, LGs
In Abia, the Abia State Infrastructural Development Fund Board is demanding N19million from Airtel as infrastructure development levy; Abia State Environmental Protection Agency/Yagazie Nigeria Ltd is demanding from each mobile operator N300,000 per new site for? environmental support fee and Environmental Impact Assessment (EIA) registration while the State Town Planning Authority is demanding N650,000 per site as permit/processing fees.

It has been taken to another level in Imo where the Imo State, Environmental Transformation Commission (Entraco) and the Imo State Town Planning Authority are demanding N262.4million for pest/vector controls fee and fumigation charges for the year 2008-2011 and N720,000 per site as permit fees.

In nearby Anambra, the state’s ministry of environment and the Anambra State Signage and Advert agency are demanding N500,000 per site as EIA fees and N4.5million as outdoor advertising for base transceiver state (BTS).

In Cross River, the state’s internal revenue service and town planning authority are demanding the payment of N510million purportedly for cell site revenue from 2005-2010 as well as N1.2m per site as site permit per operator.

In Edo State, Egor and Oredo local goverment councils see telecom operators as extractive industry with demand for the payment of N24.75m as tenement rate for 11 base stations, N16.25m as operational/inspection fee? for five BTS sites, while the Edo State Town Planning and Ministry of Commerce are demanding N750,000 and N650,000 as site permit and business premise fees respectively.

Already, Abuja Municipal Management Council has given a notice to MTN for the payment of over N257million as annual charge for their sites in the FCT, while Bauchi State Signage and Advertising Management Agency gave demand notice to Airtel for the payment of N755 million as a signage, branding and advert levy. Katsina state Urban development Authority’s demand is for N755,000 as building permit and EIA fee.??

Impediments To Telecom Growth
According to the Vice Chairman of the IWG, Mrs. Oyeronke Oyetunde, multiple taxations have been impeding telecoms growth in recent past.

She explained that a situation where a local government authority is demanding about N10million on each site from telecoms operators for building base stations in their vicinities, apart from other levels, the operators have to contend with (state and federal levels), will hinder operators in providing quality telecoms services to the generality of Nigerians irrespective of their locations.

She noted that as a result of delay often experienced in infrastructure roll-out, telecoms companies have only been able to deploy barely 20,000 base stations in the country, stressing that over 70,000 base stations would be required in Nigeria, given its large size, to provide ubiquitous telecoms services.

“If you have a local government demanding N10million from an operator and you now multiply that by the numbers of local government areas we have in the country, you will see that this is unsustainable in the long run for the operators.

It is either you kick them out of business or the operators are forced to pass the cost accrued to them through such illegal taxations to their customers in form of high tariff”, she said.

Telecom as Critical Infrastructure
Itanyi said that the base stations which the state and local governments were eager to tax were part of the necessary infrastructure required for network transmission and coverage and likened these infrastructure to the Power Holding Company of Nigeria transformers and power lines which bring electricity to homes.

“It is therefore worrisome that telecom facilities should be subjected to this form of injustice. If this issue is not properly addressed, it would certainly lead to dire consequences such as lack of expansion and proper maintenance of infrastructure instigated by high operating costs, congestion of other networks if one is shutdown, staff cuts and layoffs which adversly affect the? country, among others”, he said.

Likely Rise in Telecom Tariffs
Mr. Tobe Okigbo, representing Association of Licensed Telecommunication Operators of Nigeria (ALTON) said: “The operators may not have other choice than to push additional cost incurred to their subscribers rather than allow for a telecoms firm’s total shut down of services”.

The telecoms firms have given the indication during the maiden media parley of the Industry Working Group on Multiple taxation which was set up by the Nigerian Communications Commission to address ongoing cases of multiple taxation and its potential dangers on telecoms growth in the country.

He said there is urgent need by the government at all levels to support the industry stakeholders in nipping the incessant cases of multiple taxation and illegal and frivolous taxes in the bud to prevent operators passing the cost of the taxes on the over 96 million telecoms subscribes on their various networks in the form of increased tariff.

The President of National Association of Telecoms Subscribers, Chief Deolu Ogunbajo, noted that between 2006 and 2007, operators were charged about N10,000 and N20,000 in 2008. “And more recently, the charges in form of multiple taxations and illegal demand of some frivolous levies, have run into millions of naira. This is unfavourable as operators may have to pass this cost to us as subscribers”, he said.
Capital Flight Anxiety
Capital flight is not new in the sector as Etisalat Group has made up its mind to quit its operations in India and Malaysia by suspending its network and services. “In order to protect the interests of all stakeholders and to avoid incurring further costs at this time of rapid change and continued uncertainty in the Indian telecommunications sector.”

Etisalat is the second company to shut down services in the wake of the licence cancellations. Recently, STel, another operator in India confirmed that it was shutting up shop and was taking steps to migrate its customers to other networks.

Multi-Stakeholder Solution
Itanyi expressed worry that illegal taxation is threatening the gains and confidence achieved so far in the sector and appealed to the National and State Houses of Assembly with the support of governors of various states to initiate laws that would recognize telecoms equipment as critical national infrastructure.

He also noted that for the country to achieve broadband access, the industry needs more support from the government and urged the Federal Inland Revenue Service and the Joint Tax Board (JTB) to urgently address the issue by calling the states, local governments and their agents to order.

“We also urge the JTB to take urgent steps to define and publish areas of jurisdiction of the Federal and state governments with respect to the issues bordering on collection of taxes and levies”

Need to Protect Investments
According to Mr. Titi Omo-Ettu, President, Association of Telecommunications Companies of Nigeria (ATCON): “Our belief is once the industry is good and investment is protected, then the field is good for everybody including our members.” He said the draft ICT policy should seek to protect investment in such a manner that there can be an Open Access regime in the industry.?

“If we have broadband access in the country the more it reaches the last man the more rapidly our progress in economic and also political life”, he added.

There is urgent need to protect investments in Nigeria telecom sector. Nigeria has recorded significant milestones in its telecoms market since the liberalisation of the sector nearly 11 years ago.

From $50million investments in 1999, the liberalisation led by the auctioning of Digital Mobile Licence (DML) in February 2001 ushered in Global System for Mobile (GSM) communications technology. Investments have gradually grown from $2.1billion in 2002 to $4billion in 2003 reaching $18billion in 2008.

Investments in the sector have reached about $25billion as at the end of 2010 making Nigeria one of the fastest growing telecom markets in the world. By the end of 2010, 65 Nigerians out of every 100 had phones.

The country’s telecoms market has recorded 94 million subscribers from about 450,000 lines at the beginning of year 2000, ensuring massive deployments of microwave and terrestrial fibre optic backbones infrastructure, base stations, call centres and warehouses scattered across the country by operators using different technologies.?

Mobile telephony has become a catalyst for economic growth. According to the GSM association estimates, 10 per cent increase in mobile penetration can lead to about 1.4 per cent increase in GDP growth.?

Wide dispersal of data/ICT services has an even more significant effect on economic growth. Multiple taxations is an aberration to telecoms development and growth.

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