For the second consecutive year, the Federal Government of Nigeria has shown deliberate efforts to continuously develop the Nigerian economy while improving the ease of doing business and promoting fiscal responsibility. On 31 December 2020, President Muhammadu Buhari signed into law the Finance Bill 2020 (now Finance Act 2020) which introduced amendments to 14 tax and fiscal legislations in Nigeria. One of such amendments is the inclusion of telecommunication services on the list of goods liable to excise duty. This amendment which takes effect on 1 January 2020 has raised concerns from various stakeholders about the implementation, rates and ultimately, its effect on the Nigerian economy taking into consideration the broad coverage of telecommunication services in Nigeria.
What is Excise Duty?
Excise duty is a tax charged on manufactured goods; levied at the time of manufacture. It is also a form of indirect tax on the sale or consumption of certain goods, products, services or activities such as tobacco, alcohol, narcotics, gambling etc., mainly to discourage their use and consumption. Excise duty has been revoked on a lot of manufactured goods except for products which are harmful such as bleaching creams, alcohol, tobacco, cigarette, etc. However, since the introduction of excise duty in 1962, there has been several amendments to the administration, rates and the list of goods charged with duties of excise.
Historically, excise duty has been referred to as “sin tax” because of the categories of goods they are being levied on, and in a way, was not really a focus for revenue generation by the government. However, due to the recent fall in the price of crude oil, the government has continuously focused on non-oil revenue sources to support the budget and boost economic growth and development.
Highlights of Amendments to the Customs and Excise Tariff, Etc. (Consolidation) Act
Prior to the Finance Act 2019 amendments, Section 21 of Customs and Excise Tariff, Etc. (Consolidation) Act (CETA) provides for the imposition of excise duty on only certain goods manufactured in Nigeria. The specific locally manufactured goods on which excise duty were applicable were specified in the Fifth schedule to CETA. To create a level playing ground for locally manufactured and imported goods, the CETA was amended via the Finance Act 2019 to extend the applicability of excise duties to imported goods listed on the Fifth schedule of CETA. However, a provision was introduced as part of the amendments which suggests that goods that are not locally produced in Nigeria and raw materials that are not locally available are exempt from excise duties. This provision negates the intended purpose of subjecting imported goods to excise duty.
Hence, the need for the most recent amendment in the Finance Act 2020. The controversial provision has now been expunged. Effectively, all imported goods on the Fifth schedule to CETA will attract excise duty. Further, the amendments in Finance Act 2020 also included telecommunication services as an exciseable service.
It is important to note that prior to the Finance Act 2019, the government had previously issued a Circular referenced: 17642/II/172 and dated 6 March 2018, announcing an increase in the excise duty rates on tobacco and alcoholic beverages with effective date of 4 June 2018. The most recent change to the excise duty regime is the introduction of excise duty on telecommunication services provided in Nigeria. This has generated much criticism from relevant stakeholders in the telecommunications industry as this would create an additional tax burden on telecommunication service providers.
Likely Impact of Imposition of Excise Duty on Telecommunication Services
The telecommunication services industry is a major source of tax revenue for government. However, the taxes and levies charged on telecommunication companies impact the services delivered by the operators in areas of service adoption, pricing, investment decisions, quality and affordability of services. There is a direct link between high taxes and levies and investments in infrastructure and equipment by operators/investors, as well as the quality of services and the affordability of the service provided to subscribers.
Already, telecommunication service providers are being charged with various levies and taxes such as Right of Way Charges, National Information Technology Development Fund Levy, National Cybersecurity Fund, Annual Operating Levy in addition to existing statutory taxes like Companies Income Tax, Tertiary Education Tax, Value Added Tax, etc. The introduction of excise duty will further compound the problem of multiplicity of taxes already being experienced in the industry. One would have expected the government to harmonize these taxes and levies in line with its ease of doing business initiatives.
With Nigeria having one of the largest telecommunication markets in Africa, the introduction of excise duty on telecommunication services would ultimately result in increased revenue for the government. However, it is also important to assess the likely adverse impact on subscribers and the economy. The adverse impact would be that subscribers would begin to pay more for these services as these costs will be passed on to the subscribers. This may result to reduced patronage and hence, a reduction in turnover for the operators, which will ultimately impact productivity and economic output of the populace.
Only very few countries such as United States of America, Tanzania, Zanzibar, Uganda, Malawi, etc. currently impose excise duty on telecommunication services. Generally, excise duty is imposed on goods to discourage their demand and consumption. One would therefore wonder what the intention of the government is, considering the contribution of the telecommunication industry to Nigeria’s gross domestic product. While it is apt that the government needs to explore other non-oil revenue sources to generate the funds needed to finance the national budget, necessary caution should be taken, considering the adverse effect of any additional tax or levy on businesses and individuals.