CONNECTIVITY AND THE DEVELOPMENT AGENDA

Gbenga Adebayo argues that multiple taxation and tax regulations are obstacles to the telecommunications industry

Economic growth is underpinned by information and the technological infrastructure that enables access to it. It is the foundation upon which economic decisions are made; income gains are realised and upon which all economies grow. Economies serious about growing must actively prioritise access to affordable internet services and safeguard the infrastructure that makes it all possible. Recent projections suggest that if internet penetration continues to grow at the same rate as mobile phone penetration did on the African continent; it could contribute as much as $300 billion to the continent’s total GDP by the year 2025.

Sixty-nine per cent of Nigerians currently live below the poverty line. If that doesn’t trouble you, consider that the country is projected to have the third-highest population in the world by the year 2050: with young people accounting for over 60% of that population. As we begin to prepare for a Nigeria that will look very different within the next decade; we cannot underestimate how important it is to give our young people access to information, new technologies and a chance to build the products that can leapfrog our socio-economic challenges. Beyond accelerated growth and fortified individual rights; affordable internet access has the potential to improve educational outcomes by making education cheaper and more available for Nigeria’s 13 million outof-school children. It will improve access to credit, support urban planning and a better quality of life. And so, it goes without saying that the effects of expensive mobile data are as endless as the possibilities that affordable data will create. The evidence is clear. For example, this report estimates that reducing mobile broadband taxes by one percentage point could increase penetration by almost two percentage points -- and vice versa.

We are already seeing the dividends of a connected Nigeria, with the emergence of innovative products and services within the financial services sector. Fintech companies are tackling Nigeria’s financial inclusion challenges; actively working to reduce the rate of exclusion and bring Nigeria’s 60.1 million unbanked population into a formalised structure. They are contributing to, and in some cases creating the very financial infrastructure that other industries and businesses need to deliver products and services to the rest of us.

Is the government taxing away our Future? We should ask the important questions – “why do most Internet Service Providers (ISPs) exit Nigeria?” In the last five years, over 90% of the 103 ISPs licensed by the National Communication Commission went out of business. The answer is simple enough. The NCC itself notes that high costs, multiple taxation and tax regulations are the biggest obstacles to the telecommunications industry. There are currently over 59 taxes and levies collected by the federal, state and local governments in Nigeria. It has become obvious that many of these taxes are duplicated in some form. And yet, despite all of this, Nigeria’s tax to GDP ratio is only 6%; where, for example, South Africa is at 26%, Ghana at 17% and the African average at 18.2%. This indicates that increasing taxes does little to improve our growth prospects but does much harm to consumers and industry.

According to the NCC, telecoms operators have contributed over $68bn in foreign direct investments in the last 16 years. Nigeria’s business and fiscal landscape has hardly been encouraging despite the extensive growth potential. This administration’s current aggressive revenue generation approach continues to strain operators - particularly those whose operations are primarily the provision of critical passive telecommunication infrastructure. Since Q2 of 2017, investment in the sector has declined by 80.8 per cent quarter on quarter; falling from $174.18m. This trend seems set to continue.

And yes, aggressive fiscal policy measures are often used as a strategy to boost government revenues and they sometimes do - in the very short run. But in the long run, all of these taxes have the opposite effect. In several other countries, the evidence shows that the imposition of additional taxes or an increase in taxes levied on the telecommunications sector has had immediate, significant negative impact on telecommunications usage, penetration levels - and eventually on government revenues. Perhaps unsurprisingly many of these countries are in Africa -- reflective of the continent’s development levels.

There is also a human cost. Invariably, the sort of aggressive fiscal measures we are currently witnessing, also lead to higher prices for consumers; further restricting access to internet and mobile services that are the bedrock for education, financial services, emergency response and trade. We cannot afford to employ measures which will exacerbate the digital divide between Nigeria and other countries; or which hinder Nigeria’s ability to compete on a global stage. Some of our African counterparts are working actively to reduce the costs consumers pay for these services. The foundation of good governance is the establishment of an enabling environment for businesses to thrive. A lack of clarity, coupled with excessive fiscal measures; affect investment inflow, deter market entrants and significantly disincentivise operators; limiting the potential for the type of revenue generation in the long term that Nigeria needs to fortify its economy.

Thought leaders like Pascal Dozie have often emphasized one major problem doing business in Nigeria: the instability of policies. Businessmen can manage risks but not uncertainties. Businesses need to plan, and an environment that makes planning impossible is often one in which growth is stifled.

On the issue of multiple taxation, Omobola Johnson, the former Communications Minister, once highlighted the smart state project which aims to enrol all 36 states -- to reduce the taxes on ICT infrastructure, ensure base stations are protected, reduce the cost of right of way to lay fibre and ensure that the fibres are also protected. Nigerians should be a lot more concerned about its implementation - given the direct effect it has on them.

That said, all of this also amplifies the need to revisit the existing Taxes and Levies Act whose 2015 amendment raised the number of taxes applicable from 39 to a staggering 55. Nigeria’s federal and state governments have since used this law as backing to concurrently demand taxes from operators contrary to the intent of Nigeria’s constitution, and best practice. The resolution of the National Economic Council on multiple taxation, levies and charges on ICT infrastructure in 2013 was a laudable step by the government, and reflected the government’s recognition of the need to protect and encourage the ICT Industry by harmonising and clarifying applicable taxes. However, the decisions reached in 2013 have not been implemented. There is a need to revisit this resolution in light of our existing realities and as a matter of national urgency.

A balance can be struck: between the legitimate expectations of the government to generate revenue, and the certainty and fairness that businesses in the telecommunication sector expect for them to pursue and achieve accelerated internet development. Intentional and sustained collaboration between industry and government, must occur, to pave the way for a policy environment which allows Nigeria to benefit from the next phase of its digital transformation. Our progress on connectivity is ultimately one of the determining factors of our progress on development. The speed of that progress turns on asking the hard questions and doing the right things now.