The Finance Act, 2020, (FA) amended Section 21 of the Customs and Excise Tariff, etc. (Consolidation) Act to impose an excise duty of 5% on telecommunication services provided in Nigeria. In furtherance of this provision of the FA, the Federal Government had through the Ministry of Finance and the Nigerian Customs Service announced that it would begin implementation of the proposed 5% excise duties on telecommunication sometime in 2023.
Purported Suspension of the Implementation of the Telecom tax:
In a recent announcement by the Minister of Communications and Digital Economy, Isa Pantami (Communications Minister), the public was informed of a purported suspension of the implementation of the excise duty on telecommunications (Telcom).
This announcement was made during the inaugural meeting of the Presidential Committee on Excise Duty for the Digital Economy Sector wherein the Communications Minister justified the suspension of the Telcom excise on the basis that the tax would constitute a further strain on the already overtaxed Telcom industry and backed his assertion by statements indicating that there already exist 41 categories of state and federal taxes in the telecom sector.
The Communications Minister then, relying on the executive responsibilities of Ministers enumerated under Section 148 of the Constitution of the Federal Republic of Nigeria, 1999, (as amended), stated that the Ministry of Communications and Digital Economy would take appropriate steps “to ensure that the telco tax is repealed for fear of wreckage of the digital economy sector”.
Meanwhile, the Director General of the Budget Office, Ben Akabueze (DG Budget Office), stated that the Finance Ministry had not been advised on the suspension of the implementation of the Telcom tax and as such could not officially speak to the suspension or operation of its implementation. However, the DG Budget Office justified the implementation of the Telcom tax on the basis that Nigeria has the lowest tax-to-GDP ratio in Africa and consequently faces existential revenue challenges. DG Budget Office further buttressed this point by revealing that the Average Effective Tax Rate on Telecom in Nigeria is below the African average and that majority of the countries in Africa impose VAT rates that are double the Nigerian VAT rate.
Furthermore, the DG Budget Office stated that the federal executive council had recently passed the medium-term expenditure framework for 2023 and 2025, which includes projections for the Telcom tax, and that cancellation of implementation of the Telcom tax would require reworking the medium-term expenditure framework as projected revenues would decline and the deficit will increase such that there would arise a need to cut back on expenditure or increase debt.
The Communications Minister then announced that the President of the Federal Republic of Nigeria, Muhammadu Buhari GCFR had directed that a committee be constituted to look into the matter of Telcom excise more carefully and advise him accordingly.
In the absence of any official announcement on the suspension of implementation of the Telcom excise, it is difficult to say for certain whether implementation has indeed been postponed. However, we await the conclusion of the committee and expect that the outcome of their deliberation will be favorable for all stakeholders in the private and public sectors.
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