Communication Service Tax; is this an alternative to increase in VAT rate?

We understand that a new bill, seeking to subject all voice calls, SMS, MMS, Data/Internet and Pay TV services to Communication Service Tax (CST) @9% is before the National Assembly for passage. If this bill is passed into law, it will mandate service providers to file monthly tax returns (not later than the last working day of the month following the month to which payment relates) with the Federal Inland Revenue Service (FIRS) and penalties for non-compliance are strict. Until the passage of this bill then, we keep our fingers crossed.

Nevertheless, we have taken the liberty of analysing certain statistics relating to mobile internet and mobile voice usage. According to statistics from the Ericsson Mobility Report, total mobile subscription penetration in Sub-Saharan Africa is about 80% and is expected to grow to 100% and 1 billion mobile subscriptions by 2021 (this is just 5 years from now). Nigeria, as one of the largest mobile markets in Africa, is leading the trend based on these results[1].

The Ministry of Science and Technology also forecasts that the mobile market will be worth US$166 billion in 2020 (this is 4 years from now). Would it be safe to apply the 9% communication tax rate to this amount to arrive at a total tax revenue worth of approximately US$14.94 billion by 2020?

Facebook’s statistics show that 7.1 million Nigerians access its platform every day. And 100% of its monthly users access Facebook via a mobile smart phone. Skype has become one of the most convenient ways to feel the presence of our loved ones, even as our work schedules require more and more mobility. Awesome!- mobile internet happens to work with network data.

Pay TV has also become a major source of stress relief for many Nigerians. From the football matches to the soap operas and Africa Magic, huge cumulative monthly bills are paid to the likes of DSTV, HiTV, Gotv, Startime, Consat, Starsat, ACtV, Mytv etc. According to reports by Pyramid Research, a UK based research firm, revenues from mobile data and PayTv services will reach $3.8 billion and $647 million respectively, by 2019.

If this bill is passed into law, and the rate of usage of these services continues to grow at the anticipated levels, surely the revenues from this tax will more than adequately compensate for any additional revenue forgone by not increasing the Value Added Tax rate.

 

**Other tax bills already drawn up and which may be presented to the law makers for passage anytime soon includes ‘Nigerian Vehicle Owner's Annual Tax’ Bill and ‘Artisans and Property Tax Collection’ Bill.

[1] Credit- “How mobility is transforming Nigeria’s business landscape”- Linkedin post by Magnus Nmonwu

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