The Nigerian government appears to be abandoning the previously proposed 7.5% VAT increase on all VATable goods and services. Parliament seems to be dancing to a different tune now. The highest legislature in the country, the Senate is proposing to tax Nigerians on all calls, sms or the cable stations they make, send or watch. The tax would be fixed at 9%.
“A 9% communication service tax shall be levied on such Electronic Communication Services like Voice Calls; SMS; MMS; Data usage both from Telecommunication Services Providers and Internet Service as well as Pay per View TV Stations.” Nigerian Senator Ali Ndume, Chairman of the Senate Committee on Army said.
Here Is All You Need To Know
- The Bill entitled ‘Communication Tax Bill, 2019 (SB.12)’ sponsored by Chairman of the Senate Committee on Army, Senator Ali Ndume, passed the first reading at plenary on Wednesday.
- The bill will now go for second reading before being referred to the appropriate committee for further legislative action including public hearing.
- The proposed introduction of the tax is meant to replace the 2.2% increase in the Value Added Tax being planned by the Federal government as announced by Finance and National Planning Minister, Zainab Ahmad, recently.
- The Communication Service Tax Bill provides that the rate of the tax is 9% of the charge for the use of the communication service.
A Look At Some Provisions of The Bill
The Bill provides among other things that:
“There shall be imposed, charged payable and collected a monthly Communication Service Tax to be levied on charges payable by a user of an Electronic Communication Service other than private Electronic Communication Services.”
It further provides that
“The tax shall be levied on Electronic Communication Services supplied by Service Providers.”
“For the purpose of this clause, the supply of any form of recharges shall be considered as a charge for usage of Electronic Communication Service.”
The target of the Bill
The targets Tax on the such Electronic Communication Services like Voice Calls; SMS; MMS; Data usage both from Telecommunication Services Providers and Internet Service as well as Pay per View TV Stations,
Once the bill is passed,
“The tax shall be paid together with the Electronic Communication Service charge payable to the service provider by the consumer of the service.”
“The tax is due and payable on any supply of Electronic Communication Service within the time period specified under sub-clause (5) of whether or not the person making the supply is permitted or authorized provide Electronic Communication Services.”
Authority In Charge Of Tax Collection
The Bill provides that:
“The Federal Inland Revenue Service (FIRS) established under section 1 of the Federal Inland Revenue Service (Establishment) Act, 2007 shall be responsible for collection and remittance of tax, any interest and penalty paid under this Bill.”
Consequently, “the FIRS shall pay the tax collected together with any interest and penalty into the Federation Account.”
Who Pays The Tax
Under the Bill, while the tax payers may be the end users of those services proposed to be tax, it is the duty of all service providers to file a tax return to account for the tax.
“The tax return shall be in a form prescribed by the FIRS and shall state the amount of tax payable for the period and any related matters that may be required.
The return and the tax due to the accounting period to which the tax return relates shall be submitted and paid to the FIRS not later than the last working day of the month immediately after the month to which the tax return and payment relates,” the Bill reads in part.
However, under the Bill:
“The FIRS may extend the period within which the tax return may be submitted and payment made on application in writing by a service provider, where good cause is shown by the applicant.
“The extension shall (accordingly) be communicated to the applicant in writing and shall state the circumstances under which the tax return shall be submitted for the particular period.”
Penalty For Non-Payment of The Tax
Under the Bill, any “service provider who without justification fails to submit to the FIRS the tax return by the date is liable to a pecuniary penalty of N50, 000.00 and a further penalty of N10, 000.00 for each day the return is not submitted.”
Sponsor of the bill, Senator Ndume while justifying the proposed tax said the imposition of tax on communication service is a better way of distributing wealth in such a way that would not affect the ordinary people.
According to him, increasing VAT would have very deadly effect on the economy as it could affect prices of goods and services and take them beyond the reach of the ordinary people.
The Implication of This Bill In Relation To The New Digital Tax Proposed By The FIRS And The Proposed 7.5% VAT
The draftsman of the Bill, by coming up with this Bill, obviously has Nigerian internet users in mind. Recall that Nigeria’s tax authority, the FIRS has hinted at the introduction of VAT for all online purchases in 2020. However, until Nigeria’s Value-Added Tax Act is further amended, there is nothing much the agency can do in terms of enforcing its proposed digital tax. The draftsman of the new Bill appears also to be a step smarter here. By renaming it communication sevice tax, instead of digital tax or VAT(amendment), the bill appears to have cast its tax nets wider. Payers of the tax would now not only include internet-savvy users who can buy or sell online but indeed all Nigerian phone users whether connected to the internet or not. The Global State of Digital in 2019 report discovered that there are 98.39 million internet users in Nigeria.
According to a recent report released by Nigeria’s leading ecommerce company, Jumia there were over 172 million mobile subscribers Nigeria in 2018, accounting for a penetration rate of 87% of the population. Compared to the figures on internet users, the latter is way too high and more realistic.
In practical terms, 9% of every ₦100 ($0.28) mobile phone recharge voucher in Nigeria is ₦9, meaning that mobile phone users would only be exposed to ₦91 airtime credit. The effect of multiplying ₦9 by over 172 million phone users could only be imagined.
For now, Nigerian government can afford to shelve the proposed highly controversial 7.5% VAT or the internet tax, originally pegged at 5%. The road to the new communication service tax appears to be the quickest compared to the highly vague and often technical alternative of VAT.
The Nigerian government may have finally caught all Nigerians in its tax net.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world