A Nigerian farmer in the sub-urban areas in 2014 is superior to top level government functionaries or top business executive pre-2001 by virtue of quality and quantity of information available to him through his handheld device!

The service industry, according to National Bureau of Statistics presently makes up approximately 50% of the rebased GDP of Nigeria, which is put at approximately N80.3trillion (US$510.1bn). The telecommunications and information services sector make up N6.9trillion (US$44.3bn) of this rebased number. Compared with the 2012 non-rebased figure of N364.4 billion (US$2.3bn), this is a significant increase in GDP contribution.

The high point of deregulation of the telecommunications industry which started in 1992 was the licensing of the GSM operators at the turn of the 21st century. Significant investment has been made by operators in the industry.

Today, many businesses in Nigeria leverage the output of the telecommunications sector. For instance, numerous innovative products in the financial services industry (internet banking, mobile banking etc) rely heavily on internet access. Many on-line retail platforms have emerged and as far as telephony is concerned, the gap between the rich and the poor has virtually disappeared and only rear its ugly head in the choice of handsets or other gadgets that individual users deploy in communicating. A Nigerian farmer in the sub-urban areas in 2014 is superior to top level government functionaries or top business executive pre-2001 by virtue of quality and quantity of information available to him through his handheld device!

The revolution in the telecoms sector has constantly challenged our imagination on the possibilities and associated benefits that a turn-around in the power sector can deliver to the Nigerian economy. There is palpable envy of those who invested in the telecommunications sector to make this happen as if they did not deserve the returns on their investment. This is accompanied by the pervasive feeling amongst Nigerians that the sector can still do more. Investments are still required to eliminate drop calls, enhance faster internet access or connectivity etc.

Given the contribution and impact of the operators in this sector, the telecoms sector is a sector that must continuously be supported in all ramifications including fiscal. Apart from the peculiar challenges of the different businesses within this sector, three major areas the sector is challenged fiscally and has been seeking Federal Inland Revenue Service (FIRS)' understanding are:

Deductibility of expenses: It is trite that the basis of deductibility of expenses for a company operating in the telecommunications sector is the WREN test i.e. only expenses that are wholly, reasonably, exclusively and necessarily incurred in generating profits of the business are deductible under the Companies Income Tax Act (as amended).

There are instances where valid business expenses such as non-receipted discretionary payments (e.g. payments to various groups for approvals or security of their equipment or employees) are incurred by these operators.

These expenses are sometimes huge and arise as a result of the peculiar nature of the industry. FIRS had often times taken an inflexible position especially during tax audits/investigation exercises in relation to tax deductibility of these expenses. A more positive disposition by tax authorities to the sector's apparent business realities will be appreciated.

Input VAT: Presently, under the VAT Act (as amended), the scope for the input/output offset mechanism is limited to input VAT incurred on goods purchased or imported directly for resale and goods which form the stock-in-trade used for the direct production of any new product. The reality is that these conditions for allowable input VAT may be too restrictive.

There are arrangements within the telecommunication sector exerting pressure on this provision of the VAT Act for amendment.

For instance, telecommunication service providers (TSP) deploy network infrastructure through subcontractors who provide and maintain infrastructure on their behalf. TSPs are not permitted to recover VAT charged by the subcontractors from their output VAT despite significant VAT costs incurred on materials.

Multiple taxation: One of the clear objectives of the National Tax Policy (NTP) is the elimination of multiple taxation in all the forms in which it manifests within the Nigerian economy. Whilst the challenge of multiple taxation is not limited to the telecommunications sector, the degree of exposure is high.

Thus, regrettably, telecommunications operators are still confronted with multiple levies (e.g. annual operating levy, information technology levy, spectrum fees, national number plan fees and various other fees imposed by state and local governments) on the same stream of income.

Different tiers of government have enacted regulations imposing additional taxes/levies on these operators. While some of them are illegal, others are oftentimes based on perception that telecom operators are cash cows and should willingly submit to any form of levies or charges imposed on them. This trend needs to be evaluated, considering the intent of NTP to eliminate multiple taxation at all levels.

To the extent that the telecoms sector remains one of the clear successful policy implementation stories of the last decade, friendlier tax practices can only stimulate continuous productivity and investment by the operators. FIRS and other relevant agencies of government, which are responsible in this regard should therefore take up the challenge and enable the necessary positive changes.

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