The quest by the Nigerian government to push the Communication Service Tax bill is unnecessary, diversionary and insensitive as it is dead on arrival.
If the series of reports circling the media about new sets of taxes for the telecoms industry is true, then Nigeria’s tax authorities are over-pushing their luck.
The famous tax is called Communication Service Tax (CST) on service fees payable by users of electronic communication services at 9%. Telecoms carriers will be required to charge new sets of taxes on SMS, MMS, voice and data rates.
While the government is taking serious steps to shore up non-oil revenue to save Nigeria from one of the most vicious recessions in the last 25 years. However, the CST is ill-advised and coming at the wrong time.
Nigeria’s currency is currently in the lowest ebb. With a haphazard foreign exchange markets, companies in Nigeria especially telecoms companies. A major amount in their cashflow are denominated in Naira (NGN). These revenues have been impaired with record losses piling up in their books.
In July, MTN Group, the parent company of MTN Nigeria recorded its first ever loss per share since its 24 years of operation. Should the federal government go further with the CST, major telecoms companies will have to deleverage. That is to put it mildly.
Here is a possible negative scenario that will play out:
The CST bill will make telecommunications services overtly expensive to customers who are already suffering from the recession and layoffs. Their inability not to pay for these services will shrink demand for telecom brands. May carriers will have to cut jobs as their bottom line will take a huge hit from plummeting demand in the market.
Many of them might have to stop servicing some states where demands are low which would further impoverish many Nigerians who are already suppressed by the recession.
The government should have a rethink before jumping to pass the bill to the National Assembly. It is dead on arrival.