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Communication Tax: Subscribers, Business Leaders Ready for Showdown

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The proposed communication tax is one tax too many, and may trigger widespread reactions if the bill is eventually passed into law.

Although the ‘controversial’ Communication Service Tax bill has passed the first reading at the House of Representatives. The major telecommunications companies in the country are all against it, and have vowed to do all they could to resist it.

For the telecoms firms and subscribers, it is seen as a wrong approach to generating revenue amid a sinking economy and an impoverished people.

“We are going to mobilise the Nigeria Labour Congress, the civil society organisations and the entire nation against it.

“We shall bring the government of Nigeria to a standstill should the lawmakers at the National Assembly continue with the process of passing that bill into law.

“In fact, we must not even allow a second reading of the bill, or allow them to hold a public hearing, because most times when you allow them to hold a public hearing, they do so in secrecy just to ensure that people do not oppose their (lawmakers’) decision,” the President, National Association of Telecommunications Subscribers, Mr. Adeolu Ogunbanjo, told our correspondent.

Upon passage and assent, the CST bill, which is currently in the Senate, will compel telecommunications service subscribers, including satellite television providers like DSTV, to pay additional tax on services rendered by their providers.

The others include GoTV, Startimes, CONSAT and other telecoms operators. Services such as voice calls, SMS, MMS, data and pay TV will all have an additional nine per cent tax imposed on the services; meaning that the subscribers will pay the usual cost of service, plus nine per cent of that cost.

“It is one tax too many. Already, there are 26 different taxes being paid by Nigerians. Again, all the various components of telecoms are being taxed; for instance, the Subscriber Identification Module card, handsets, among others, take about five per cent tax already,” Ogunbanjo said.

He said, “Again, the cybercrime tax that was signed into law last year takes 0.5 per cent of tax.

“Also, when the operators want to lay their fibre optic cables in Lagos, they pay a minimum of N500 per metre tax. And by the time they have laid the cables in several metres, that would have amounted to millions of naira in tax.

“It is even worse outside Lagos, where operators are charged many times over what they pay in Lagos.”

Business leaders, notably the Lagos Chamber of Commerce and Industry, say the Federal Government needs to balance its drive for taxation against the demand of the private sector to have a friendly business environment.

“We know that the government is seeking to diversify its revenue base. But it is also true that the private sector players would like to see an investment-friendly environment, especially in the light of the prevailing high cost of doing business in the country,” the LCCI President, Nike Akande, said.

According to her, the chamber believes that it is in the best interest of Nigerians to have a virile, robust and growing economy. “Creation of a good business environment is imperative to making this proposal happen,” Akande said.

The Partner at PricewaterhouseCoopers, Taiwo Oyedele, said the proposed communication tax as it affects the firm would be over N20m per month.

“But then they have constructed the bill on wrong assumptions and have overestimated, because if the tax on communication and Internet services will be increased, then definitely the users of these services will drastically decrease, resulting in them making way less than they anticipated and estimated,” Oyedele said.

He said research had proved that Nigeria was one of the lowest tax-compliant countries, despite having a population of about 180 million people.

“There are only 10 million taxpayers from the 36 states. Therefore, we expect that policies made should leverage the telecommunications sector to help expand tax rate, not imposing tax on telecommunication services, thereby discouraging the sector instead of encouraging it,” he said.

He stated that the government should focus more attention on tax evaders and increase the number of taxpayers, rather than imposing taxes on telecommunications, which might end up retarding the wheel of progress in the economy and country as a whole.

The President, Association of Licensed Telecoms Operators of Nigeria, Gbenga Adebayo, said the proposed law would lead to a decrease in the flow of revenue, as investors would take their investments to other countries with lower tax rates.

“Nigeria needs investment so as to provide employment, especially to our growing youth. Owing to that increase in call rate, there will be drastic reduction in the composition of data usage, as well as voice call, SMS, MMS, pay tax and the like, which will reduce usage and the country’s GDP,” Adebayo said.

“ALTON’s position as regards the nine per cent tax is that when the legislature is drafting policies, the policies should be investment-friendly, which will in turn be beneficial to the whole country and economy at large,” he added.

Meanwhile, findings from investigations conducted by our correspondent show that while Nigeria’s tax rates are not the highest comparatively, the country is doing very poorly in terms of the time taken to comply and the number of payments (which together impact negatively on the ease of doing business and investor confidence).

However, the Minister of Communication, Adebayo Shittu, said there were many areas in Nigeria where there were no access to Internet, to telephone and the like.

“By 2018, we hope to have accomplished 30 per cent of widespread use of telecommunications in all the areas of Nigeria, but presently, we have accomplished only 10 per cent. But then there is a probability that with the nine per cent tax rate charge, accomplishing this will be almost impossible,” Shittu said.

A top executive in one of the four major telcos in the country described the communication tax as a “Greek gift.”

Pleading not to be mentioned, he said, “In fact, that is a Greek way of internally generating revenue, because you cannot claim to be alleviating the sufferings of the people, yet you turn back to take whatever you must have given to them.”

The idea to go ahead with the passage of the bill, despite earlier resistance, may have pitted the telecoms firms against Shittu.

According to the telcos, the feeling is that Shittu has done little or nothing to stop the lawmakers from moving to pass the bill.

Another telecoms employee, who spoke on condition of anonymity, said, “If the minister, despite our pleas for understanding, could still remain calm, even in the midst of the hardship being experienced by Nigerians (subscribers), then it is obvious that he (the minister) has got nothing to offer the country.”

He added, “The minister had better take a bow now, than remain in office and preside over the collapse of the 2018 project that is aimed at deepening broadband penetration in the country.

“Can you deepen broadband penetration by denying Nigerians access to the Internet and making it difficult for them to make calls?”

At a time when the drive should be intensified to attract investors – local and foreign – to commit their resources to rescuing the troubled economy, concerned Nigerians are worried that the lawmakers are seeking to enact laws that will introduce disincentives.

The proposed CST will not only deter new investors from coming into Nigeria, but it will also force the current foreign investors to stagnate further investments.

According to a telecoms analyst, Constance Azuru, the CST is not a wise move from an investor’s perspective.

“The CST bill is retrogressive for an economy that requires help from all fronts to alleviate the sufferings of its people, the same people who will now be further taxed,” Azuru said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Rises as Threat of Immediate Iran Supply Recedes

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Oil prices rose on Tuesday, with Brent gaining for a fourth consecutive session, as the prospect of extra supply coming to the market soon from Iran faded with talks dragging on over the United States rejoining a nuclear agreement with Tehran.

Brent crude was up by 82 cents, or 1.13%, to $73.68 per barrel, having risen 0.2% on Monday. U.S. oil gained 91 cents, or 1.3%, to $71.79 a barrel, having slipped 3 cents in the previous session.

Indirect discussions between the United States and Iran, along with other parties to the 2015 deal on Tehran’s nuclear program, resumed on Saturday in Vienna and were described as “intense” by the European Union.

A U.S. return to the deal would pave the way for the lifting of sanctions on Iran that would allow the OPEC member to resume exports of crude.

It is “looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian Presidential Elections later this week,” ING Economics said in a note.

Other members of the Organization of Petroleum Exporting Countries (OPEC) along with major producers including Russia — a group known as OPEC+ — have been withholding output to support prices amid the pandemic.

“Additional supply from OPEC+ will be needed over the second half of this year, with demand expected to continue its recovery,” ING said.

To meet rising demand, U.S. drillers are also increasing output.

U.S. crude production from seven major shale formations is forecast to rise by about 38,000 barrels per day (bpd) in July to around 7.8 million bpd, the highest since November, the U.S. Energy Information Administration said in its monthly outlook.

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Oil Prices Rise as Demand Improves, Supplies Tighten

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Oil prices rose on Monday, hitting their highest levels in more than two years supported by economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.

Brent was up 53 cents, or 0.7%, at $73.22 a barrel by 1050 GMT, its highest since May 2019.

U.S. West Texas Intermediate gained 44 cents, or 0.6%, to $71.35 a barrel, its highest since October 2018.

“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts,” said Stephen Brennock of oil broker PVM.

“This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity.”

Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.

The mood was also buoyed by the G7 summit where the world’s wealthiest Western countries sought to project an image of cooperation on key issues such as recovery from the COVID-19 pandemic and the donation of 1 billion vaccine doses to poor nations.

“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” said Rystad Energy analyst Louise Dickson.

The International Energy Agency (IEA) said on Friday that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.

IEA urged the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet the rising demand.

The OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.

On the supply side, heavy maintenance seasons in Canada and the North Sea also helped prices stay high, Dickson said.

U.S. oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.

It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand.

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FG Spends N197.74 Billion on Subsidy in Q1 2021

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The Federal Government has spent a total sum of N197.74 billion on fuel subsidy in the first quarter (Q1) of 2021, according to the Federal Account Allocation Committee (FAAC) report for May.

The report noted that the value of shortfall, the amount the NNPC paid as subsidy, in the March receipts stood at N111.97 billion while N60.40 billion was paid in February.

In the three months ended March, the Federal Government spent N197.74 billion on subsidy.

The increase in subsidy was a result of rising oil prices, Brent crude oil, against which Nigerian oil is priced, rose to $73.13 per barrel on Monday.

The difference in landing price and selling price of a single litre is the subsidy paid by the government.

On May 19, the Nigerian Governors Forum suggested that the Federal Government removed the subsidy completely and pegged the pump price of PMS at N380 per litre.

The governors’ suggestion followed the non-remittance of the NNPC into the April FAAC payments, the money required by most states to meet their expenditure such as salaries and building of infrastructure.

However, experts have said Nigeria is not gaining from the present surge in global oil prices given the huge money spent on subsidy.

Kalu Aja, Abuja-based financial planner and economic expert, said “If Nigeria is importing Premium Motor Spirit and still paying subsidy, then there is no seismic shift.”

“Nigeria needs oil at $130 to meet the deficit. In the short term, however, more dollar cash flow is expected and with depreciated Naira, it will reduce short term deficit.”

Adedayo Bakare, a research analyst, said that the current prices do not really mean much for the country economically.

He said, “The ongoing transition away from fossil fuels and weak oil production from the output cuts by the Organisation of Petroleum Exporting Countries will not make the country benefit much from the rising oil prices.

“Oil production used to be over two million barrels but now around 1.5 million barrels. We need OPEC to relax the output cuts for the naira to gain.”

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