Multiple Taxes Threaten Investments in Telecom Sector

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Networks Operators in Nigeria

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Telecom operators are asking the various tiers of government in the country to harmonise their taxes so as to limit the tax burden on them which hinder also hinder further investments and expansion of services across the country

By Anayo Ezugwu  |  Oct 12, 2015 @ 01:00 GMT  |

TELECOM operators in Nigeria are calling on the state governments across the Nigeria to harmonise the multiple taxes charged on them so as not to impede expansion of investments in the sector. The operators complain that the huge financial burden imposed on them as taxes by state governments are a major hindrance to further investment in network expansion and improving the quality of service in the country..

According to the GSM operators, if the taxes charged them were not harmonised and arbitrary Right-of-Way charges abolished, they might hold back in terms of making the necessary investments in network expansion.

The Punch reported that multiple taxations was hindering the operators from spending an estimated $6.2 billion on network expansion, which was initiated in 2014, to improve the quality of service mandates given to them by the Nigerian Communications Commission, NCC. It quoted telecom operators as saying that part of the N979 billion investments not already spent would be held back until state governments across the country address the imposition of unstructured fees and charges by the various tiers of government and service interruptions arising from collection attempts. The operators are taking this step because they cannot keep investing when multiple taxation as well as other challenges continue to have a negative impact on their operations and continue to erode their revenue base.

One of the operators, Funso Aina, public relations and protocol manager, MTN Nigeria, said illegal taxation was altering incentives for production and consumption, and so, economic distortions would be prevalent in states where the burden of taxation is high. Ironically, the burden of excessive tax is subsequently transferred to end users because of high cost of doing business which eventually leads to   non-affordability of services rendered. It also makes it difficult for telecom services to penetrate all over the country.

From Aina’s point of view, telecom firms are battling with state governments on the issue of multiple taxations, especially in some states of the South East where it is affecting the companies’ average revenue per user, ARPU. “In spite of the increasing demand for telecommunication services, which has been driven by the sharp decline in tariffs over the last three years, and stimulating increasing minutes of usage and activity on the networks by a growing number of people, the ARPU has steadily been on the decline because of the value erosion in the industry. The fierce battle by operators for the wallet share of subscribers and the fact that Nigeria is largely a multi-SIM market has also led to a decline in the ARPU,” he said.

Similarly, Osondu Nwokoro, former director, regulatory services, Airtel Nigeria, had in the past said multiple taxations was a huge threat to investments in network expansion. “No matter how much operators invest, if the enabling environment is not in place, the output will not be seen. Subscribers will feel that the operators are not making any effort to address the issue of poor quality of service,” he said.

However, the challenge of multiple taxations has not stopped operators from drawing up big budgets and signing new contracts for network expansion based on high optimism that the issue will soon be resolved. For instance, Etisalat Nigeria recently announced plans to spend $500 million in network expansion in Nigeria before the end of this year. MTN Nigeria in the past secured a medium-term loan facility of $3 billion from a consortium of 17 local and seven foreign banks.

Globacom, signed contracts with two Chinese companies, Hauwei ($750m) and ZTE ($500m), totalling $1.2 billion for network optimisation and upgrades. In the last 42 months, Airtel Nigeria said it had invested $1.5 billion in network upgrades. It is estimated that there are more than 22,000 Base Transceiver Stations in Nigeria to meet the communication needs of the 114 million active mobile lines.

Nonetheless, Funmi Omogbenigun, former general manager, Corporate Affairs, MTN Nigeria, said two weeks ago that, “The delays in the right-of-way and the inconsistency of approach and fees levied across the different states of the federation are currently delaying the roll out of the BTS infrastructure, which have direct consequences for quality of service and approvals for building sites.

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