Telcos hold N203bn potential VAT in airtime, data, SMS sales

By Omobayo Azeez

• Experts worry about effect on universal telecoms access

Nigeran telecommunication service providers fully transferred a new federal government 7.5 per cent value added tax (VAT) to voice and data customers from February 1 and immediately opened a revenue yielding opportunity estimated to be no less than N203 billion at the end of the year, business a.m’s probe has shown.

The conservative amount was arrived at after putting into consideration the total revenue earned by telecoms operators, especially mobile network operators in 2019 from the sales of recharge cards and subscription, which was estimated at N2.78 trillion.

According to operators, despite many challenges confronting the telecoms industry, the pendulum of subscriptions to telecoms services is only expected to swing northward.

This would mean increase in potential revenue for the operators if the current average revenue per user (ARPU) is maintained.

Average revenue per user, sometimes known as average revenue per unit, is a measure used primarily by consumer communications, digital media, and networking companies and is defined as the total revenue divided by the number of subscribers.

As at 2019, ARPU in the Nigerian telecoms industry was estimated at $3.85 (N1,182) going by the official exchange rate of N305 to N306 per dollar in the period under review year.

According to Olusola Teniola, president, Association of Telecommunications Companies of Nigeria (ATCON), ARPU, which is the monthly spending of an average subscribers on telecoms services is at best, expected to be flat in 2020, or at worst marginally decline.

The latter would be in line with the increase in inflation due to increase in VAT rate rise and reduced consumer spending and affordability triggers.

Meanwhile, prior to February 1 when the new VAT regime commenced, operators had informed their subscribers to prepare for the charges as it would affect voice call, data usage, short messaging service (SMS) and other telecoms services patronized by the subscribers.

In a document jointly signed by Gbenga Adebayo, chairman and Gbolahan Awonuga, head of operations of Association of Licensed Telecom Operators of Nigeria (ALTON), the operators said purchases of telecommunication products and services would be affected by the implementation of the VAT increase.

ALTON said the VAT increase would reflect on the charges of phone calls, text messages and data for Internet in Nigeria. It said: “Further to the assent of the Finance Bill by President Muhammadu Buhari, which reviewed the Value Added Tax from five per cent to 7.5 per cent, ALTON wishes to notify consumers that our members will begin applying the new rate on all purchased telecommunication products and services with effect from February 1, 2020.”

ALTON, however, gave the assurance that its members will adhere to tariff transparency and quality service delivery in implementing the VAT increase.

Experts’ worries

Industry pundits have expressed worries that while the federal government can always justify its decision on the VAT increase, it should as well weigh its possible consequences on the development of the telecoms industry.

They expressed concerns that at a time when the government is pushing of digital and financial inclusions which depend on access to telecoms services, general taxes and industry- specific ones could frustrate efforts to achieve universal digital access in the country.

Olusola Telniola said that the 7.5 per cent new VAT increment on goods and services may limit telephony access of some 90 million Nigerians estimated to be below the poverty line in the country.

Already, Umaru Danbatta, executive vice chairman of the Nigerian Communications Commission (NCC) disclosed last week that that some 35 million Nigerians in some 195 communities and towns in the country are currently without any form of telephony access.

It is fared by ATCON that the focus of the service providers which had always been to ensure that subscribers have access to cheaper services, both calls and data, has been affected.

Teniola noted that since the last recession the country witnessed, the Federal Government had practically been struggling to balance its budget, which has constantly been in deficit.

He said the plan was to introduce sector specific tax, adding: “I mean there was clamour by the National Assembly to either bring on a nine per cent Communication Service Tax (CST) on the sector, though remains a subject of hot debate, or an overall tax increase of 50 per cent, that is from five per cent to 7.5 per cent.

“The latter was later adopted by the Federal Government. This means that from February 1, all calls, Internet calls, data services, SMS will now have a charge of 7.5 per cent tax.

“But I must say this, the objective of the telecoms sector is to have a cheaper telephony services. Despite the increment, we are still looking for every means to ensure prices are reduced.”

Teniola further stated that the operators would be looking at areas to work with federal government to ensure that telecoms services do not go beyond the reach Nigerians.

Subscribers take complaints to Pantami, communications minister

It was observed by our correspondent the operators have commenced charging of 7.5 per cent VAT from the scheduled day, February 1, leading some telecoms consumers to report the ‘unauthorized’ deductions to the federal ministry of communications and digital economy.

In his response however, Minister Isa Pantami of the ministry said the Federal Inland Revenue Service (IFRS) is accountable.

In a statement signed by his media aide, Uwa Suleiman, Pantani explained that his office has been besieged by complaints from subscribers.

“The office of the Minister of Communications and Digital Economy, Dr Isa Ali Ibrahim (Pantami) has been inundated with complaints and enquiries concerning the recent 7.5 per cent VAT deductions on voice calls and text messages, by some Mobile Network Operators (MNOs).

“While we appreciate the support and efforts of well-meaning Nigerians who have sought clarifications in a civil manner, we wish to inform the general public that the issues of VAT, do not fall under the Ministry’s purview.

“All further enquiries and clarifications may henceforth be directed to the Federal Inland Revenue Service (FIRS), being the proper institution for tax matters,” the statement read.