Multiple Taxation and Regulation

in the

Nigerian Telecomms Industry: Causes, Effects and Remedies

by

Osondu C. Nwokoro

at

WAICT Congress, 2012

8 May 2012

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Table of Contents

Background. Concept Definition. Root Causes of Multiple Taxation and Regulation. Effects of Multiple Taxation and Regulation. Suggested Solutions to Multiple Taxation and

Regulation: Various Stakeholder Roles. Conclusion.

Background

In addition to the above, the telecomms has been a major driver of growth of non-oil sector contribution to the Gross Domestic Product (GDP) which peaked at 36.19

in Q411 -National Bureau of Statistics

Within 10 years of existence, “The mobile industry is having a positive economic impact by generating substantial investment in infrastructure and employing a

significant number of Nigerians … $16bn invested… there are as many as 3m jobs directly and indirectly related to mobile services in the country – Pyramid Research,

March 2010

Telecomms is becoming a foundation for enhanced socio-economic development of the country with multiplier effects on other sectors, such as, Banking and Finance,

Advertising, Hospitality, etc – a critical Social Overhead Capital (SOC).

The Sector would have done better but for the problem of multiple taxation and regulation which continues to inhibit its further growth and development.

Concept Definition

Spurious, unjustifiable and/or inappropriate levies imposed by MDAs at the Federal, State or Local Government levels on telecomms operations.

“Taxation” used generically, not within its classical context.

Regulatory prescriptions by two or more Ministries, Departments or Agencies (MDAs) on the same subject matter, which may impose similar or different obligations on the regulated entity, in this case a telecomms company.

Multiple Regulation Multiple Taxation

Concept Definition- cont’d

There is a close relationship between multiple taxation and multiple regulation as in most cases, the MDAs involved in a multi-tiered regulatory regime are ultimately only concerned with extracting “rent” from the operator.

Example II: The Imo State Environmental Transformation Commission (ENTRACO) is demanding for N32 from Airtel alone for the fumigation of Base Stations.

Example III: The Bauchi State Signage and Adverts Management Agency (BASSAMA) has a claim of over N700,000,000.00 for adverts in Bauchi State against Airtel.

Example I: The Lagos State Infrastructure Maintenance and Regulatory Agency (LASIMRA) Law, 2004 prescribes fees payable by telecomms operators based on the height of masts. Such payments do not in any way remedy the “planning risks” purportedly posed by such masts which are also subject to NCC oversight.

Root Causes of Multiple Taxation and Regulation

Multiple Taxation Declining allocation from the Federation Account, especially for States that heavily rely on this source of income .

Drive to increase internally generated revenue particularly at the State and Local Government levels.

The illusion that telecomms is a “cash cow” and should the main target in raising internally revenue.

Illegal use of Consultants for assessment and collection levies. Spurious levies determined to boost collectible revenue and increase commission which is dependent on collections.

Multiple Regulation Federal structure and the Constitution authorize certain items to be legislated across the three tiers of government.

Telecomms is a business with nationwide presence across the six geo-political zones in the country. Each mast is regulated at the Federal, State and Local Government levels.

The quest by MDAs at the Federal, State and Local Government levels to exercise regulatory oversight on telecomms industry considered to be the most successful sector outside Oil & Gas.

Effects of Multiple Taxation and Regulation

• Most demands unfounded in law and illegal. Merely justified by

“government might”. Improper in present “Rule of Law” regime as professed by government.

• Militates against accurate business planning and forecasting which is critical for corporate growth.

• Precipitates business losses that inhibit economic development and limit tax revenues to government on account of revenue loss to operators occasioned by network disruptions.

• Inhibits penetration of telecomms services, as operators are discouraged from making further investments in highly volatile areas.

• Increases incidence of network outages caused by inability of operators to carry out required maintenance and refuelling of the shut down sites resulting in degradation of quality of service.

Effects of Multiple Taxation and Regulation – Cont’d

• Could occasion the diversion of foreign direct investments to other

jurisdictions considered friendly by investors.

• Poses threat to public safety and security, as subscribers at locations experiencing network outages will be unable to receive security alerts on imminent danger.

• Operators may not be able to adequately support the law enforcement agencies to investigate crimes at affected locations.

• Could become a barrier to broadband roll out with attendant adverse impact on internet penetration and services, such as mobile payment in view of the impending nationwide launch of “cashlite” regime by the Central Bank of Nigeria.

• Unconventional tactics employed by the MDAs for the collection of the levies result in injury and damage to operators’ staff and property.

Suggested Solutions to Multiple Taxation and Regulation

Various Stakeholder Roles

• Given that telecomms is on the Exclusive List of the Constitution, the

Federal Government should by Executive Pronouncement declaring telecomms facilities Critical National Infrastructure (CNI) to guard against arbitrary site closures and ensure the provision of adequate survelliance for same.

• Substantive legislation to be enacted subsequently.

Federal Government

• Engage a reputable Consultant to undertake a consolidated brief on past, present and future value-add of the industry to the socio-economic development of the country. This will present to the MDAs the benefits accruable to all stakeholders if the Telecomms Sector is allowed to run unhindered.

Telecomms Operators

• Engagement with the Joint Tax Board to specify and publish an updated list containing all the taxes, levies and amounts payable on each heading to the different tiers of Government.

• Concerted engagement with the Governors’ Forum and Association of Local Governments of Nigeria (ALGON) highlighting the dangers of multiple taxation to the country.

• Facilitate Executive Declaration of telecomms facilities as CNI.

Ministry of Communications Technology

•Identify MDAs at Federal and State levels whose functions overlap with its, and execute Memoranda of Understanding (MoU) with such institutions, this is similar to the arrangements with the Consumer Protection Council and the National Lottery Regulatory Commission, as roles and responsibilities of all parties will be identified and specified therein in order to function and blossom.

•It is commendable that an Industry Working Group (IWG) had been inaugurated under NCC’s auspices to address multiple taxation and regulation. The IWG to engage with government at the highest level.

Nigerian Communications Commission

Conclusion

At 95m subscriber threshold (69% penetration, end 2011), mobile is expectedly playing a key role as an economic enabler and social overhead capital (SOC) with a 4% contribution to GDP. Further contribution to economy expected with growth to 128m subscribers by 2014.

It is imperative for every stakeholder to play its role to address incidence of multiple taxation and regulation in order to ensure further enhancement of penetration and GDP contribution for the ultimate benefit of the country.

Thank You. at

WAICT Congress, 2012

8 May 2012

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