Telcos begin implementation of 7.5% VAT on voice calls, data

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By Anayo Ezugwu

ON February 1, the federal government began the implementation of the 7.5 percent Value Added Tax, VAT. Indications from the telecommunications companies are that the cost of phone calls, text messages and data for internet has increased to reflect the new rate.

The Association of Licensed Telecommunications Operators of Nigeria, ALTONS, said it had start the implementation of the country’s new 7.5 percent VAT. The association in a statement said: “Further to the assent of the Finance Bill by President Muhammadu Buhari, which reviewed the Value Added Tax, VAT, from five percent to 7.5 percent, ALTONS wishes to notify consumers that our members will begin applying the new VAT rate on all purchased telecommunication products and services with effect from 1st of February 2020.”

By implications, the 7.5 percent increased VAT will reflect in the charges of phone calls, text messages and data for internet in Nigeria. The telecommunications operators assured Nigerians of tariff transparency and quality service delivery.

Expectedly, the 15 kobo per second charges paid by Nigerians for phone calls, N4 per test message and the charge for data usage will be more as the implementation begins. Like every other policy in Nigeria, the telcos are yet to inform consumers the new charges in relation to the new VAT. From experience, though the full weight of the increase is yet to be felt, no doubt, Nigerians must comply with the new charges.

As concerns mount over the new VAT on calls and data, Isa Ibrahim Pantami, minister of communications and digital economy, has urged Nigerians to direct their inquiries to the Federal Inland Revenue Service, FIRS. The minister said his office had been inundated with inquiries by Nigerians concerning the deductions, asserting that his office had no mandate to intervene on tax issues.

“The office of the Honourable Minister of Communications and Digital Economy, Dr. Isa Ali Ibrahim Pantami, has been inundated with complaints and enquiries concerning the recent 7.5 percent VAT deductions on voice calls and text messages, by some Mobile Network Operators, MNOs. While we appreciate the support and efforts of well-meaning Nigerians, who have sought clarifications in a civil manner, we wish to inform the general public that the issues of VAT, do not fall under the ministry’s purview.

“The office of the Honourable Minister of Communications and Digital Economy is not mandated to handle VAT. In the same vein, we also wish to notify the general public that contrary to popular opinion in some quarters, the Honourable Minister of Communications and Digital Economy had no prior consultation or awareness about the development. All further enquiries and clarifications may henceforth be directed to the Federal Inland Revenue Service, FIRS, being the proper institution for tax matters. The Honourable Minister assures all Nigerians that under his leadership, the interest of all Nigerians will be protected,” the minister said in a statement signed by Uwa Suleiman, his media aide.

Apart from VAT on phone calls, test messages and data, the federal government is also targeting over-the-top, OTT, services providers like YouTube, Facebook, Twitter, WhatsApp, Blackberry Messenger and many others with the new rate. The government said the OTT service providers will be required to declare the revenue they generated from Nigerian consumers and pay taxes.

This is one of the major fallouts of the new finance Act which now subject all multinational digital companies operating abroad with significant economic presence in Nigeria to taxation. By this move Nigeria is following the steps of many countries, which have policies that guide these services.

Vice President Yemi Osinbajo, who confirmed this development explained that only companies that have a physical presence in the country were being taxed previously, adding that the new law had changed this. “So, most digital and multinational technology companies do not have a physical presence in Nigeria, yet make significant income in Nigeria from online activities.

“They pay no tax to Nigeria because they do not have a physical presence in Nigeria, now we are no longer relying on physical presence. Under the new Act, once you have a significant economic presence in Nigeria, you are liable to tax whether you are resident here or not,” he said.

But Taiwo Oyedele, partner/West Africa Tax Leader, PwC Nigeria, said with the new finance Act, Nigerian businesses and consumers are over taxed. Speaking in an interview with CNBC, Oyedele said the implementation of the new Finance Act has commenced and the impact is already being felt particularly on taxable consumer goods and services which now attract 7.5 percent VAT, up from five percent.

“I will say that in many countries where you have VAT, VAT is a flow through tax which means, if you are trying to build a factory you shouldn’t bear any cost of VAT because all VAT you have to pay in the process, you can claim it back. In Nigeria you can’t. This means that the cost of investing in Nigeria has just gone up because of increase in VAT rate.

“I still think that Nigeria’s VAT at 7.5 percent looks like 10 percent in terms of the impact. And that is because you cannot claim input VAT on services, investment and capital assets. Having said that I think government did a good job by trying to expand the list of items of which the VAT should not affect.

“I went to the Mall just to find out how these will be done, I discovered that they have quickly increased the rate to 7.5 percent, but what has not been reflected are the items that are previously vatable and now exempted still carry VAT.

“The way the VAT law is, shows that certain items will remain the same for example if you buy milk or vegetable, while prices of other items will go down because they are previously liable to VAT but are no longer liable to VAT like bread and garri. Whereas some will go up like airtime and data,” he said.

Oyedele called on the federal government to educate Nigerians on the new VAT rate and items that are vatable.

– Feb. 7, 2020 @ 18:59 GMT |

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