Update on 5% Excise Duty on Telecoms Services

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The Federal Government is reportedly set to proceed with its implementation of a five per cent, 5% excise duty tax on mobile telephone services, fixed telephone, and Internet services.

This is despite a recent communication by the Minister of Communications and Digital Economy, Isa Pantami, that the government has exempted the telecoms sector from excise duty tax.

In September last year, the Federal Government suspended the proposed 5% excise duty on telecommunication services for the first time.

The suspension was announced by Pantami during the inaugural meeting of the Presidential Committee on Excise Duty for the Digital Economy Sector.

According to the minister, the Information, Technology and Communication sector, especially the telecom industry, is already overburdened by excessive and multiple taxations, which will likely adversely affect the sector if the government fails to take any precautions.

Pantami noted that the ICT sector has been the backbone of the Nigerian economy both in the area of its contribution to the Gross Domestic Product and taxes collected by the Federal Inland Revenue Service.

The minister said, “However, in spite of the contributions and achievements of the sector, we have been recording some challenges coming up from time to time that if care is not taken these challenges could be a barrier to the development of this sector in the next few years to come. One of them is the issue of excessive taxation and sometimes, multiple taxations in the sector.”

He further disclosed that the number of taxes from both federal and state levels paid by firms in the ICT sector rose from 39 in August to 41 in September 2022, within a period of about a month.

“The ICT sector is being overburdened with so many categories of tax,” Pantami stressed, adding, “If care is not taken, this is going to jeopardize the achievements and gains we have r&ecorded so far in the sector.”

The Federal Government, through the Budget Office of the Federation, had earlier revealed that it would begin the implementation of its proposed 5% excise duties on telecommunication services and beverages in 2023.

However, Pantami has maintained that he is against implementing this tax, which would increase the cost of telecommunication services for Nigerians.

The minister noted that with the increase in operating costs due to inflation and rising diesel prices, among others, there were more than 15 attempts to increase the price of telecommunication services within three years, which he kicked against.

The minister also said that he rejected the excise duty on telecoms because such a tax is usually introduced on luxury products or services.

He added that in most countries, it is usually introduced to reduce the consumption of certain things in the country, such as cigarettes.

Pantami noted that by implication, it means the government is discouraging Nigerians from using telecommunication services, which have become a necessity for many Nigerians.

He said that introducing the 5% Excise Duty would likely destroy the sector and further contribute to more hardship for Nigerians.

The Federal Government, however, inaugurated a committee to review the possibility of introducing the excise duty in the digital economy sector and advise the presidency on the necessary steps to take.

Also Read: Three Reasons Telecoms Sector is Exempted from 5% Excise Duty Payment

After months of uncertainty concerning the implementation of a new tax on calls, data, and other telecom services, Pantami, in March 2023, announced that the government was concerned about the sufferings of Nigerians and has exempted telecoms from excise duty.

He said, “I am happy to report to you that President Muhammadu Buhari, GCFR, has approved the exemption of the digital economy sector from the five per cent excise duty to be paid and this is because of the strength of the argument presented to him by the Committee that additional burden on telecom sector will increase the sufferings of Nigerians and that other sectors that are not making as much contribution to the economy should be challenged to do more and pay the five per cent excise duty.”

However, the new Fiscal Policy Measures for 2023 via a Circular dated 20 April 2023, and signed by the Minister of Finance, Budget and National Planning, Zainab Ahmed revealed that the government was set to proceed with the implementation of the five per cent excise duty on telecom services.

The circular was shared on Linkedin by the Fiscal Policy Partner and Africa Tax Leader, PwC, Taiwo Oyedele. The circular was coded HMFBNP/MDAs/CIRCULAR/2023 FP/04 and titled ‘Approval for the Implementation of the 2023 Fiscal Policy Measures and Tariff Amendments.’

It stated that the president, Major General Muhammadu Buhari (retd), has approved the implementation of the 2023 Fiscal Policy Measures.

It read in part, “The revised excise duty rate on alcoholic beverages and tobacco products in line with existing excise regime implementation period shall take effect from 1st June 2023 and reviewed upwards in line with the new regime by 1st June 2024.

“The excise duty on Single Use Plastics shall also take effect from 1st June 2023. While on the other hand, the excise duty rate on Telecommunication Services remains as approved by Mr President and published in the Official Gazette No. 88, Vol. 109 of 11th May 2022.”

Oyedele said, “The 2023 FPM confirms the excise duty on telecommunication services earlier introduced via the Finance Act 2020 and prescribed in the Official Gazette No. 88, Vol. 109 of 11 May 2022 approved by the President.

“The tax is applicable on mobile telephone services, fixed telephone, and internet services, both postpaid and prepaid at the rate of five per cent.”

Excise duty on telecom services has generated a lot of controversies since the minister of finance first announced its implementation in 2022 with telecom operators and consumers kicking against the tax. At the time, operators stated that the tax would be transferred to consumers (increasing consumption tax on telecom services to 12.5%) because of the multiple taxations that the sector was already besieged with.

To counter the implementation of excise duty on telecom services, telecommunication consumers under the aegis of the National Association of Telecoms Subscribers are presently in court to fight the legality of the government’s move.