High Consumer Taxes on Mobile Could Hold Back Nigeria's Development

Mobile connectivity has fundamentally changed the fabric of society in Nigeria. Since the first mobile services were introduced in Nigeria, consumer demand has rocketed. Today the country has more than 83 million unique subscribers, accounting for 45% of the population. As well as providing access to financial services, education and healthcare to millions of citizens, many for the first time, mobile has also played a critical role in reducing transportation, communication and transaction costs.

In addition, the mobile ecosystem contributed US$8.3 billion in value add to the Nigerian economy in 2014 alone, and mobile operators supported the creation of 164,000 jobs. Such is its significance, that driving mobile growth is a fundamental part of the government's Vision 2020 plan to consolidate Nigeria's position as one of the 20 largest economies in the world, and a central element of President Buhari's election manifesto.

Nigeria has made remarkable progress in delivering mobile connectivity, but more than half the population of Africa's biggest economy remains unconnected. Given that only 0.2% of Nigerians have access to fixed telephone lines, mobile represents the first opportunity for the majority of citizens to get access to communications services. If mobile is going to reach its potential for development in Nigeria, supportive policies that increase digital inclusion and drive even greater growth are needed.

For these reasons the GSMA, along with other organisations including ALTON, ATCON and NATCOMS, has rejected the Nigerian government's proposed Communication Service Tax that would establish a nine per cent tax on users of services such as SMS, voice calls, MMS and data.

By pushing up the cost to consumers, this tax will inevitably impact the adoption of mobile. Affordability is a key challenge in connecting the unconnected. In Nigeria, use of a mobile phone represents on average around 5% or more of personal income, making basic mobile services unaffordable for vast swathes of society. However, taxing electronic communication services will hit lower income consumers the hardest, making access to mobile even less of a possibility. It is these consumers and communities that stand to gain the most from the social and economic inclusion that access to mobile provides. The proposed legislation may also result in a double taxation for consumers who already pay VAT on telecommunications services, resulting in a taxation level of 15% or more.

The development of a competitive digital economy is driven by increased mobile penetration and investment in networks. This will ultimately strengthen the economy and lead to faster economic growth, plus higher fiscal income for the government from a broader tax base. Conversely, by negatively impacting take-up of consumer services and therefore industry revenues, the proposed tax will reduce the incentive for mobile operators to invest in the infrastructure improvements that are essential to improve and expand mobile connectivity across Nigeria.

Mobile industry investment in Nigeria is already constrained by multiple levels of taxes and fees in specific to mobile the country. There are 26 different taxes and fees levied on mobile operators and consumers, including national and local taxes on revenues, businesses and business sites as well as regulatory fees such as spectrum and permits fees. Mobile operators paid US$850 million in taxes and regulatory fees in Nigeria in 2014. When set against a backdrop of tumbling revenue per user, all these factors start to erode the incentives for investment in the mobile industry in Nigeria. For investors, the business case may not stack up.

According to the World Bank, in developing economies such as Nigeria, every 10 per cent increase in broadband subscriber penetration accelerates economic growth by 1.38% in the long term. Increasing taxation levels could jeopardise the contribution of the industry towards economic growth and prevent the spread of mobile broadband that would enable Nigeria to become a modern knowledge-based economy.

Its imperative that the government carefully considers all factors in order to create a balanced and equitable taxation structure on mobile. Only by fostering a regulatory environment that encourages mobile penetration and infrastructure investment can the mobile industries fully deliver its economic and social benefits. We can't afford a short-term gain for long-term pain approach. With more than half of Nigeria's citizens still to experience the power of mobile, we can't afford to hold development back.http://nigeriaconsumers.org/post-55-High-Consumer-Taxes-on-Mobile-C...

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