May 11, 2022/CSL Research
The Association of Licensed Telecoms Operators of Nigeria (ALTON) have noted that the removal of multiple taxes in the telecoms industry will reduce part of the operational pressure on telcos and help them retain the current pricing regime of calls, SMS, and data, at least temporarily. The telecommunication companies, last week, proposed a 40% increase in the cost of calls, SMS, and data to the Nigerian Communications Commission to alleviate the rising cost of running the business in the country. Based on their proposal, the price floor of calls will increase from N6.4 to N8.95, while the price cap of SMS will increase from N4 to N5.61. According to the players, the telecommunication industry has been financially impacted following the nation’s economic recession in 2020 and the effect of the ongoing Ukraine/Russia crisis.
The Chairman of ALTON, Gbenga Adebayo, said telecom operators pay as much as 36 different taxes and levies to governments across the three tiers of governance. He also noted that there are nuisance taxes which are taxes that are not in the statute, and it is in an attempt to collect those taxes that public actors often disrupt telecom services. He called for an elimination of these taxes to give a breather to telecom companies but noted that even if the government removed these taxes, the current pricing regime might still be insufficient to cover the operational cost for telecom companies. He also reiterated the importance of classifying telecoms infrastructure as a critical national economic infrastructure to minimise the destruction of such facilities.
The problem of multiple taxes continues to undermine the operations of many companies in Nigeria, significantly eroding profitability. These taxes are various unlawful compulsory payments being collected by the local and state governments without appropriate legal backing and many times through intimidation and harassment of the payers. The telecom operators who have critical infrastructure to protect are particularly susceptible, as refusal to pay these taxes will likely lead to the destruction of equipment and service disruption.
Many Nigerian businesses continue to face economic challenges from the steep depreciation of the currency to inflationary pressures, and more recently, the supply chain crisis resulting from the Russia Ukraine war, which has led to a substantial increase in the prices of goods and services. Telecom operators have witnessed the increased operational cost of providing telecommunications services. Moreso, many of the equipment/infrastructure used to provide services are sourced internationally, requiring FX, and they have had to resort to the parallel market amid the FX scarcity.
The Nigerian Communications Commission (NCC) has the statutory responsibility to set the voice and data tariff floor in the country with the aim to promote healthy competition. Thus, the decision to either raise rates as proposed by the ALTON or retain rates solely rests with the regulator. However, in our view, the appeal by the telecom operators to the government to eliminate these taxes is reasonable. The least the government can do to help businesses at a critical time like this is to eliminate any unnecessary additional cost of doing business.
