Imminent 9 Percent Tax on Telecom Services in Nigeria Threatens Tech Sector Progress

A cloud of uncertainty hangs ominously over Nigeria’s tech industry as the specter of a tax increase lurks. In May, we brought to your attention the Federal government’s plan to impose a 9 percent tax on communication services, another way of saying the cost of calls and texts in Nigeria is likely to rise. Under the shadow of escalating costs, we brace for this impending reality.

The Communications Minister, Barr. Abdur-Raheem Shittu, bolstered the stance of the government, stating that the projected earnings from this tax are expected to exceed N20 billion every month. Attraction to this potentially lucrative prospect stems from an urge to bridge the nation’s budget deficits. Yet, the government assures the public that its decisions are framed with a human touch, perhaps in an attempt to add a silver lining to a dark cloud.

Despite these assurances, a group dubbed The Alliance for Affordable Internet (A4AI)-Nigeria, spearheaded by the former NCC (Nigerian Communications Commission), vehemently opposes this decision. The group believes this tax would only serve as a roadblock, making Internet access financially unfeasible for millions of Nigerians. This concern is echoed by the Lagos Chamber of Commerce and Industry (LCCI), which asserts that the economic fallout of this tax will discourage investment and hinder the progress of the telecommunications sector.

This proposal comes in light of government efforts to fund the 2016 budget, which has seen a steep decline due to a slump in crude oil prices and retaliation by militants that has further devastated Nigeria’s revenue. Consequently, Nigeria’s position as Africa’s biggest economy has been usurped by South Africa, as reported by the International Monetary Fund (IMF). Incentivised by the desperate need to fund projects and cover salaries, it is clear why the government eyes the potentially lucrative prospect of telecom taxation.

However, it seems that robbing Peter to pay Paul might have ill effects. In the modern world, tech companies have managed to dominate market value, principally due to the favorable environments that allow citizens to innovate. Western nations, with better access to technology, host the top 5 companies globally. In contrast, the slower pace of ICT penetration in Nigeria and across Africa has been mainly hindered by the prohibitive cost of tech services like broadband, placing Africa in a precarious position.

The average Nigerian, already buckling under the weight of economic pressure, will ultimately bear the brunt of this tax increase. With the prices of broadband and call services expected to soar, affordability stares down a bleak path. As such, the dream of building the next tech giant like Facebook or Google may continue to be a distant reality for many. The repercussions of this ripple across 180 million people, potentially causing lasting damage to the nation’s tech ecosystem.

Nigeria, already reeling from currency fluctuations and its toll on the citizens, coupled with a decline in computer shipments to Africa in the second quarter of this year, faces another blow. The average price for a laptop currently stands at a staggering 200,000 Naira/$550, creating another financial barricade for those living on a minimum wage of 18,000. Consequently, the government’s plan to impose taxes on services run via smartphones and PCs may hinder the planned expansion of technology services in Nigeria. The imminent 9 percent tax indeed seems to hold the potential to cast a long, dark shadow over Nigeria’s tech sector.