Reactions Trail Senate’s Move To Block VAT Hike & Place 9% Tax On Calls, SMS, Data & Cable

By  |  October 3, 2019

It’s Tax Season In Nigeria!

The Nigerian senate has stepped in to stop the proposed 2.2 percent increase in Value-Added Tax (VAT) imposed on certain goods and services in the country.

Oddly, the senate saw it fit to, instead, impose a 9 percent tax on communication services, as an alternative to the proposed hike in VAT. And many are questioning the rationale behind what could be thought of as a proposal that has all the makings of the proverbial “from the frying pan to the fire” analogy.

“The idea is most ill-advised. First, the burden of taxation will fall very heavily on the poor, indeed the bottom of the pyramid. So it’s regressive taxation,” WeeTracker gathered from Dr. Aloy Chife, currently Managing Partner/CEO of Saana Capital and the highest-ranking Nigerian-American to serve in an executive-level capacity at a Fortune-100 technology company in Silicon Valley, USA (Apple).

He added: “The Telco sector is a very important driver of economic activity. It’s contributions to GDP is very high. Taxes will act as a disincentive to consumer utilization and impacting negatively on the overall economy.”

It would be recalled that early last month, the Nigerian government through the Ministry of Finance, Budget and National Planning, proposed an increase in VAT paid on certain goods and services to 7.5 percent from the current 5 percent. This was to take effect from early 2020.

Image result for zainab ahmed images
Zainab Ahmed, Nigeria’s Minister of Finance, Budget & National Planning
Source: Nairametrics

The government had predicated the proposal on the need for more funds to be made available to both state and local governments since 85 percent of VAT goes to those two tiers of government.

That proposal drew outrage from many Nigerians who lamented another insensitive move by the government which would mostly make the lives of ordinary citizens harder while enriching a select few.

Senate Blocks VAT Hike, Then Proposes Communication Services Tax

Now, the senate has come in with a proposal of their own and Nigerians aren’t having it.

Locals had been momentarily soothed by the knowledge that the senate had kicked out the VAT increase proposal only be outraged by a replacement proposal by the senate.

Chairman of the Senate Committee on Army, Senator Ali Ndume, while speaking with newsmen, after Wednesday’s plenary said that the VAT increase was not in the best interest of Nigerians and cannot stand.

Senate rejects VAT increase
Sen. Ali Ndume
Source: Nigerian Tribune

Then, he went on to reveal that the lawmakers were seeking a legislative action to impose a 9 percent tax on communication services.

According to Ndume, the new 9 percent communication service tax shall be levied on electronic communication services like voice calls, SMS, MMS, surfing data from both telecommunication services providers and internet service providers, as well as pay-per-view TV stations.

The proposed Communication Service Tax Bill stipulates that the rate of the tax is 9 percent of the charge for the use of the communication services.

Basically, Senator Ndume introduced the Bill for an Act to establish the Communication Service Tax at Wednesday’s plenary session.

The bill will now go for a second reading before being referred to the appropriate committee for further legislative action including a public hearing.

Apparently, Senator Ndume’s comments about the Communication Service Tax serving as a way of distributing wealth in such a way that it would not affect the ordinary people have not gone down well with many people who consider the move just as insensitive to the plight of the ordinary Nigerian as the proposed VAT hike.

How The Communication Service Tax Could Affect You

Quite simply, a tax of 9 percent on all communication services basically means less value for the same amount of money, or worse still, less value for more money.

By its implications, a data subscription of NGN 1,000 will either cost NGN 1,090 or it could mean that the data buyer would only get NGN 910 worth of data.

The math can be worked for different communications services of various amounts. It just means that anybody who uses the internet, or a mobile phone, or Cable, will have to pay extra for using those services.

And it’s clear why Nigerians are kicking against it too, though there are those claim that such communication services are already being taxed in Nigeria and the submission from the senate may be coming from the place of ignorance.

Victor Asemota, Africa Partner at Alta Global Ventures and Board Advisor at Flutterwave, did tell WeeTracker that the senate’s proposal should be “resisted as there is already VAT being paid on those services.”

Featured Image Courtesy: PulseNG

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