Nigeria sustains ‘hunt without barriers’ in new tax drive

The Federal Government’s aggressive pursuit of increased non-oil revenue to pare huge budget deficit, which has remained a yearly routine over the years, gained further traction last week, with plans by the lawmakers to enact Communication Service Tax (CST). But the move, like others, is still testing the controversial waters over its morality, workability and economic viability.        Following the most recently tax initiatives, which controversies are yet to settle, include the planned online transactions tax for 2020 and 44 per cent rise in Value Added Tax (VAT). The CST, according to the nation’s lawmakers, is an alternative to VAT.Already, “fast fingers” among the nation’s financial analysts are seeing a shortfall with CST’s revenue capacity and rising cost for telecommunications’ users, while VAT holds sway over potential inflationary pressure, among others. In both ways, they signify additional burden for the citizenry and represent government’s great “hunt without barriers.” The CST Bill is back from the dead but now repurposed. The 2016 version was meant to help boost government revenues from non-oil taxes in the wake of the collapse in oil prices between 2014 and 2016.In the 2019 version of the bill, which passed the first reading in the Senate this week and it proposes a nine per cent Communication Service Tax (CST) to replace the planned increase in VAT from five per cent to 7.5 per cent by the FG.The CST, when passed into law, will be levied on the consumers of voice calls, Multi-media Messaging Service (MMS), Short Message Service (SMS) data usage and Pay per View TV services provided by mobile telecommunication and Internet service providers. While the companies must provide the government access to network nodes, non-compliant service providers could suffer penalties, including five per cent of gross yearly revenue from the last audited financial statements or a revocation of their licence.Failure to file returns by due date will attract N50,000 as well as 10,000 per day until compliance while non-remittance of the tax by the due date will attract a monthly interest on the unpaid tax at 150 per cent of the average of prevailing lending rates by commercial banks. The Par trillioner/Head of Tax and Corporate Advisory Services at PwC Nigeria, Taiwo Oyedele, while reacting to recent developments in Nigeria tax system, said the positive side for government is additional revenue, which on the other side, will leave the citizens with more difficulties, unless palliative are quickly scripted. Noting that government must not only go about taxing Nigerians, he recalled that the fundamental principle of taxation is that people should pay according to their abilities, which presently is questionable, as regards how many people that can pay.“To limit the impact of an increase government should implement counter measures and palliatives to protect businesses and the poor. Ensure transparent reporting and efficient utilisation of the revenue for public services and infrastructure to act as palliatives and catalyst for growth. “Government should lead by example,” he said, ensuring that all its Ministries, Departments and Agencies (MDAs) fully comply.For analysts at Arinvest Securities Limited, the CST would overburden consumers who already bear five per cent Value Added Tax (VAT) on telecommunications services.“As Nigeria plans to boost digital connectivity and derive the attendant benefits, this could slow progress as consumers readjust spending patterns given the level of poverty in the country. For the telecommunications sector, the proposed CST worsens the issue of tax multiplicity. “In addition to existing taxes, companies would bear increased costs of compliance and lower patronage as consumers react negatively to new taxes. With the sector contributing 1.2 per cent to the real GDP growth of 1.9 per cent in Q2:2019, there is the prospect for even slower economic growth. “Similarly, considering that the penetration of telecommunications services is lagging in rural areas, the planned tax would slow progress towards expanding national coverage. This could have negative implications for financial inclusion which is expected to be driven by mobile money services,” the Managing Director of company, Ayodeji Ebo, said in the Weekly Update made available to The Guardian at the weekend. The analysts noted that the CST may not generate as much as the proposed VAT of 7.5 per cent, which we conservatively estimate to bring in additional N545.1 billion as additional revenue. They said that an analysis of data on the sectoral distribution of VAT collections, showed that VAT from professional services, which includes collections from the telecommunications sector, was N86.3 billion in 2018. Revenues from the CST of nine per cent would clearly fall short of the Federal Government’s expected increase in VAT, even without considering the changes to consumer demand and growth in the sector. “Our analysis of the 2019 budget performance in half year shows that the FG’s deficit continues to rise given the slow increase in revenue. Between January and June 2019, the FG incurred a deficit of N1.3 trillion, which is 63.5 per cent of its proposed budget deficit (N2.1 trillion).


Source: Guardian