Taxation Of Telecommunications Companies: What You Need To Know

Over the years, the Nigerian telecommunications sector has taken a lead role in diversifying the economy of the country. It encourages sectoral growth by using the instrumentality of digitalization that has been brought about by the technological innovations in the telecoms space.

Despite all these, the Telecommunications operators in Nigeria still face prohibitive barriers to seamless implementation of digitalization in the country as they have been reported to be paying more than 40 different taxes and levies to various agencies of the government at the Federal, State, and Local level. According to the Tax and Enabling Business Environment in Telecoms Sector, the payment of all these levies and taxes is reducing the pace at which the sector is expanding in the country and thereby inhibiting digital inclusion and mobile penetration as the cost of all these taxes are mostly passed to the consumers.

Virtually all the major Telecommunications companies in Nigeria pay the tax directly or indirectly either in form of tenement rate or site installation fee or effluent, etc.

Just like other companies in Nigeria, every Telecommunications company is expected to pay Corporate Income Tax (CIT) of 30%. However, this rate (30%) is only applicable to companies that have an annual gross turnover greater than NGN 100 million and is payable on the profits accruing in, derived from, brought into, or received in Nigeria within the year of assessment.

Nigeria telecommunications companies’ dividends are also liable to tax at source. However, the dividends that are paid in the form of bonus share/scrip shares to individual shareholders are not subjected to tax. Also, where the company is a shareholder in another company, such dividends are excluded from the profit of the company for computation of CIT. Telecommunications network services may arise from more than one jurisdiction. A service could emanate from one jurisdiction and terminate at another jurisdiction, and between different telecommunications companies. This is particularly so given the fact that the Corporate Income Tax Act (CITA) makes a distinction between Nigerian companies and foreign companies. The importance of this distinction lies in the separate treatment for tax purposes, of the profits of the two companies.

Thus, for a Nigerian company that engages in telecommunications, the tax is on its global income whether or not this income has been brought into Nigeria or was received in Nigeria. However, for foreign companies, only profits that are attributed to their operation within Nigeria, are taxable.

Asides from the CIT, Telco operators also pay taxes/levies to the different levels of government. As stated above, they pay over 40 different taxes/levies which leads to the major problem that is being faced by the Telco operators; Multiple Taxation. They are paid in form of taxes, levies, permits, fees, tenements, etc.

See a summary of some of the taxes:

TYPE OF TAXTAX RATETAX HEAD
CIT30% (above N100m turnover); 20% (above N25m turnover); 0% (less than N25m turnover).Taxable profit
TET2.5%Assessable profit
NITDA Levy1% (only companies with annual turnover above N100m).Profit before tax
Police Trust Fund Levy0.005%Net Profit
NASEI Levy0.25% (only companies with annual turnover above N100m).Profit before Tax
VAT7.5%Income

Some of the other tax-related issues that the Nigerian Telecommunications sector has been struggling with over the years range from High/Excessive tax demands, Illegal taxes and Levies, Illegal enforcement, and Unwarranted Legislation.

With duplication of Federal, State, and Local Government tax regimes and tax enforcement by multiple agents Agents, Telco operators often experience facility lockouts by these agencies in a bid to enforce compliance in the collection of taxes. This often results in the degradation of the network quality. For instance, when the operators are denied access to sites for refueling, maintenance, or fault resolution, this leads to congestion and other deficiencies of service quality.

In 2020, the Federal Inland Revenue Services (FIRS) and the Nigerian Communication Commission (NCC) signed a Memorandum of Understanding (MOU) as regards Value added tax (VAT) and other tax liabilities of the telecommunications industry in the country.

The memorandum is part of the inter-agency collaboration aimed at improving the transparency of business operations in Nigeria. It is to ensure that FIRS ascertains the accuracy and completeness of VAT elements and other taxes payable in the transactions of telco operators. Under this MOU, the FIRS will integrate its application program interface (API) technology with the systems of the Telco operators for independent verification of VAT payable on all qualifying transactions by the mobile network operators rather than relying solely on the book of accounts of the Telco operators.

NCC, the regulator for the telecommunications industry, stated that it had done its due diligence to ensure that the API will not create another layer of tax on the Telco operators who are already dealing with multiple taxation issues. It further reassured that the integration of the technology with the Telco operators’ transactions systems will not impact the cost and quality of the service being provided to the consumers by the operators.

It is expected that this technology will provide a level of certainty in the taxation of the Telecommunications companies, reduce the incidence of multiple taxations experienced in the sector, as well as improve the collection of VAT.

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