How New 5% Tax Undermines NCC’s Drive for Affordable Telecoms Services

The Nigerian public recently became agitated following the announcement of  imposition five per cent excise duty on telecoms services proposed by the Federal Ministry of Finance, Budget and National Planning.

If successfully imposed  by the federal government, the new tax would automatically raise the costs of making telephone calls, sending messages and subscribing for data services on the networks of telecom operators.

This will undoubtedly undermine the efforts of the Nigerian Communications Commission (NCC) over the years to ensure that as telecoms services become more pervasive in the country to reach many more Nigerians, affordability of the services is also taken seriously.

Although the Minister of Finance, Budget and National Planning, Zainab Ahmed, who spearheads the new tax proposal for telecoms services, is empowered by the constitution to advance such fiscal moves to generate revenue for the federal government to fund its budget, Nigerians and stakeholders, especially those in the telecom sector have frowned at the tax imposition, describing it as a dangerous move for the sustainability of the sector.

This informed the firm stance of the Minister of Communications and Digital Economy, Isa Pantami, who at a forum in Lagos just few days after the announcement of the new tax, vehemently kicked against the 5% excise duty proposal, with a promise to fight the policy even behind the scene.

“Beyond, making our position known today, we will go behind the scene and go against any policy that will destroy the digital economy sector. This is a sector we cherish so much and we are ready to go to any extent, legitimately and legally to defend its interest,” the minister had stated.

Minister of Communications and Digital Economy, Prof. Isa Pantami

With the supervising minister of the telecommunication sector, Pantami, also saying that he was neither informed nor consulted officially before coming up with the tax policy, the tendency is then high that even the NCC as the industry regulator was not kept in the loop regarding the development.

NCC’s Drive for affordable Telecoms Services

The Nigerian Communications Commission has been at the forefront of making telecommunications services affordable for Nigerians and this drive has been seen to be part of its foundational regulatory building blocks.

Since 21 years ago when the sector was deregulated, the costs of accessing telecoms services have reduced appreciably despite the rising cost of deploying telecoms infrastructure alongside other macroeconomic burdens such as inflation that continues to spike year after year.

To maintain its  affordability drive, the commission has tilted its regulatory efforts toward providing alternative means for operators to reduce capital expenditure and prevent higher costs from being passed to final telecom consumers. Such regulations include infrastructure-sharing and collocation which have led to the tremendous growth of the sector in terms of investment and ability to reach many more millions of Nigerians including those in remote locations.

Impressive Growth Across Industry Metrics

Under such regulatory atmospheres, Nigeria’s telecoms sector is now valued at over $75 billion in investment while the industry has also connected a total of 302.9 million telephone lines with 204.6 of that number active on the networks of operators.  This indicates a wide margin from NITEL’s 400,000 active telephone subscribers before the sector was opened up for private investment inflow in 2001.

The sector has also recorded tremendous growth in terms of teledensity which now stands at 108.15%. Teledensity refers to the number of active telephone connections per 100 inhabitants living within an area. Similarly, internet connections in Nigeria have reached 151 million, with broadband penetration also flying high at 44.42% representing 84.61 million connections as at June this year.

These growths across major indices that measure adoption of telecoms services in the country are not unconnected with the affordability drive of the telecoms regulator that has made it possible for millions of Nigeria to join the digital train.

NCC’s Stance Against Arbitrary Billing of Consumers

Telecoms consumers and industry observers would recall many occasions when the NCC has had to disagree with the telecom operators when they attempted to increase tariffs in the telecom sector.

One of such cases is the recent demand for tariff increases by the operators through the Association of Licensed Telecommunications Operators of Nigeria (ALTON), citing the high cost of running their operations and insecurity as the major reason for their proposed tariff hike.

ALTON President, Engr. Gbenga Adebayo

In its response however, the NCC rejected the demand, allaying the fears of Nigerians that no tariff increase will be carried out by the operators without due regulatory approval by the Commission.

Speaking of approval, the commission has always committed effort and resources to conduct cost-based market research carried out by competent organisations to set the floor and ceiling thresholds for the billing system.

According to the Executive Vice Chairman of the NCC, Professor Umar Danbatta, this is to reflect market reality and put the interests of consumers and operators into consideration.

In accordance with the Nigerian Communications Act 2003, the NCC, just in April this year, again commissioned PwC to conduct a study on the competition level in the telecoms sector while it moved to improve infrastructure sharing and collocation among operators, a move that will further lead to moderation in the final cost passed on to telecoms consumers.

Speaking recently in Abuja, Professor Danbatta, said some access gap clusters in the country have been reduced from 217 to 114 to enable 15 million Nigerians to have access to telecoms services. Such feats can be ascribed to the excellent regulatory tradition of the commission.

Declining Call Tariff

The result of a sustained effort of the commission to establish affordable telecom service regime, coupled with healthy competitive environment for operators engendered by its regulations has led consumers to spend less while they get more value.

Data on the annualized average cost per minute of a voice call during call traffic peak periods, across all the major telephony operators in the country, which was tracked in 10 year between 2007 and 2016 showed that call tariff has reduced by as much as 67% in the 10-year period.

The data obtained by Business Metrics indicates that the average cost of calls made to a number within the same network (On-Net) and a number on another network (Off-Net) stood at N34.20k and N41.10k respectively totaling N75.30k in 2007.

However,10 year later in 2016, On-Net and Off-Net tariffs stood at N12.01k and N12.64 respectively to total N24.65k as against N75.30k recorded a decade earlier.

Meanwhile, between 2016 and 2022, the tariffs  have further declined to the delight of Nigerians. Industry pundits have attributed this principally to regulatory efforts following the liberalisation of the sector that stimulated a wide range of licence categories to drive innovations and create internal economies of scale for the sector.

This efficiency is attained as the telecoms sector improves output when the average cost for products and services drops.

Cost of Data and the National Broadband Plan 2020-2025

When the Alliance for Affordable Internet (A4AI) stated in its latest report that Least Developed Country (LCDs) like Nigeria recorded decrease in price of broadband data in 2020, experts immediately called on Nigerian authorities to protect low-income earners in the country by ensuring that cost of data further becomes more affordable.

This call also resonates with the agenda of the National Broadband Plan 2020-2025 which targets 70% broadband penetration and 90% adoption by 2025.

It is therefore instructive that any attempt to impose additional tax that will have direct bearing on the cost of data service be avoided lest the 70% broadband penetration may be achieved but in a saturated environment while high cost of the service may keep many Nigerians at distances. According to experts, only affordability in prices can drive adoption.

Addressing the issue of data affordability in Nigeria, the Nigerian Coordinator of A4AI, and formal President of the Association of Telecommunications Companies of Nigeria (ATCON), Olusola Teniola said: “What we have found is that in Nigeria, the price of data has dropped but it has favoured only those that can afford huge data bundles.

What that means is that a purchase of 70GB of data is more than what some people earn in a month in Nigeria. But if this is divided, the price is quite low per gigabyte and this is the reality of the situation in Nigeria.

At the moment, Nigeria has stabilized its broadband affordability index at 1.7% but stakeholders being led by the chief telecoms regulator, the NCC, are working to further drive the cost down, as indicated in the NBP 2020-2025.

According to the ECV of the NCC, while addressing industry players recently, the commission is working with other stakeholders to ensure that the National Broadband Plan (2020-2025) is implemented as recommended by the experts that put it together to ensure that Nigeria moves from about N487/GB to around N390/GB by 2025.

NCC’s Consumer-Centric Regulatory approaches

Nigerian Communications Commission has over the years developed many regulatory frameworks targeted at protecting telecoms consumers from being extorted or shortchanged by operators, in the same manner it has continued to work with stakeholders to protect the interests of its licensees.

For instance, the commission has succeeded in saving Nigerians from unsolicited calls and SMS that used to cost subscribers an excess of N500 billion as of 2016, by introducing the toll-free Do Not Disturb (DND) 2442 code that allows subscribers to block the services partially or completely.

The commission has also provided channels for subscribers to escalate their complaints should the operators fail to solve them within a given duration, after which the operators are sanctioned if found guilty of foul play.

This is done by using the NCC Toll-Free number (622), e-mail or in person at the Consumer Affairs Bureau of the Nigerian Communications Commission or by walking into any of our zonal offices around the country. The Commission has also introduced mobile number portability (MNP) into the sector to give consumers the power to choose their favourite network while they still retain their original Subscribers Identification Module (SIM) cards.

All these, among other instruments, are attestations to the commission’s consumer-centric regulatory approach which is further amplified by its annual Telecoms Consumer Parliament (TCP).

One Sector Too Many for Contributions

The telecommunication sector has earned the appellation: Economic enabler, and it has continued to live up to expectations regarding that title. This is seen in how it facilitates economic development through automation and digitisation of other sectors on the one hand, and on the other, how it directly contributes to the fortune of the economy.

Just last week, Professor Danbatta disclosed that the NCC ,as a revenue-generating regulator of the sector, remitted N4563 billion to the federation account in the last five years.

While the sector has also been serving as a viable conduit for Foreign Direct Investment (FDI) inflow into the Nigerian economy, the amount of revenue telecoms licenses contribute to the coffers of the government in form of taxes and levies can also not be ignored.

For example, Danbatta said that the gross domestic product (GDP) contributions of the telecoms industry had grown from 8.5 per cent in the fourth quarter (Q4) of 2015 to 12.61 in the Q4 of 2021, while the telecoms sector also attracted over $2 billion in foreign direct investment over the period.

In addition, a leading GSM operator and a telecom licensee, MTN Nigeria, for instance, also paid N757 billion in direct and indirect tax to the Nigerian government agencies in 2021 alone. This included N618.7 billion in direct and indirect taxes to the FIRS in the 2021 tax year, making it the largest single biggest contributor to taxes in Nigeria. In fact, this amount represented 13.5% of the total tax collection by FIRS in 2021.

As such, Professor Pantami, Nigeria’s Minister of Communication of Digital Economy, has cautioned the federal government from carelessly eroding the gains of the sector via too many tax obligations, while he encouraged the government to tap into opportunities in other sectors.

In respect of the 5% excise duty, he said: “You introduce excise duty to discourage luxury goods like alcohol. Broadband is a necessity. If you look at it carefully, Broadband contributes 2 per cent to 7.5 per cent to the economy. Imposing 5% excise duty on operators will only bring hardship at this time, and that cannot be tolerated.”

Last Line

From all indications, the federal government should reconsider the proposed 5% Excise duty and listen to Nigerians and stakeholders in the telecoms sector who have argued that in addition to the existing 7.5% VAT, making Nigerians pay as high as 12.5% tax will undermine the effort of the Nigerian Communications Commission to make telecoms services available, accessible and affordable for Nigerians.