Nigerian Telecommunications Law Newsletter

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Nigerian Telecommunications Sector and the Tax Regime (Part 1) February 2009 Vol.13 Issue # 2 There is an emerging school of thought that that the huge opportunities that abound in information and communications technologies (ICTs), in Nigeria are being retarded by multiple taxation from governments. Indeed, while tremendous progress and growth has been recorded in the ICT and telecoms sectors, multiple taxations and the attendant ripple effects on pricing for telecoms services may be implicated in poor service provisioning in Nigeria. Some experts believe that high taxation is also responsible for the slow pace of digital penetration and connectivity in the rest of the sub-Saharan Africa. According to GSM Association (GSMA), an organisation of more than 700 mobile phone operators in more than 220 countries, supported by over 178 equipment manufacturers, mobile telephony taxations in sub-Saharan Africa account for 35 per cent of revenues of mobile operators in Nigeria. The GSMA recently commissioned Frontier Economics to study the impact of lowering and removal of mobile

specific taxes like air time, handsets and equipment across sub-Saharan Africa. The study quantified and estimated the mobile industry’s historical and future impact on tax and Investment; economic growth, coverage and penetration. It stated that the situation is more worrisome in Zambia with 53 per cent and Madagascar with 45 per cent of taxations.

It has been argued that if governments of Sub-Sahara African countries could lift taxes on ICTs, it will greatly reduce the operation cost of the operators, lessen exploitation, improve access to ICT solutions by the people, enhance improved quality service as well as catapult the economy because it affects every sector of the economy.

It seems clear that if governments in sub-Sahara Africa removed mobile specific taxes, mobile ownership and usage will rise, stimulate wider economic growth. An example of a country where the reduction in taxes has helped telecom development is India. The Indian telecom industry has witnessed rapid growth in the past five years due to the responsiveness of the government in reducing significantly taxes in the ICT industry. India has the sixth-largest fixed telephone network in the world. The Indian government

©Blackfriars LLP 2009. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.

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addressed some of the concerns regarding anomalies in the Customs Duty Structure and this has helped reduce costs of imports, which in turn had a positive impact on network rollout and subsequently led to expansion in services in different service areas and an increasing subscriber base.

levy specific luxury taxes on ICT equipment. (To be continued)

It is arguable that if taxes are removed, growth in the telecoms and ICT sector as a whole will be maximised. More than 3.5 million are directly or indirectly employed by the mobile phone industry in sub-Saharan Africa. This contributes an average of four per cent to African countries Gross Domestic Product (GDP). Mobile phone consumers in Africa face the highest tax rates in the world which hit poor members of the society most. These taxes hold back mobile phone adoption in Africa and retard economic growth.

Ms. Nkeiru Onyeaso Tel: +234 808 718 0833 Email: [email protected] Fax: +1 646 536 8978

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Dr. Virtus Igbokwe Tel: +234 802 220 4755 Email: [email protected] Fax: +1 646 536 8978 This newsletter has been sent to you by BLACKFRIARS LLP, a full-service law firm, in the genuine belief that its contents would be of interest to you. If you have received this newsletter incorrectly, or if you do not want to receive further information about

Another school of thought however believes that tax holiday for investors rather than direct removal of tax, whereby government may waive tax for the telecom investors for some years of initial operations like it was done in Nigeria should be implemented. Another report by Deloitte which looked at global mobile taxes between 2006 and 2007 states that in sub-Saharan Africa, 24 governments levy specific luxury taxes on mobile handsets, eight governments levy specific luxury taxes on mobile airtime and 25 governments

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©Blackfriars LLP 2009. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.