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Wednesday, September 28, 2022

Analysts see 5% excise duty on telecom services boosting Govt revenue

The Nigerian Ministry of Finance recently announced the FG’s decision to begin implementation of a 5.0 per cent excise duty tax on all voice calls, SMS, and data services. This tax was contained in Finance Act 2020 and had presidential approval.

This decision was made despite the existing 7.5 per cent Value Added Tax (VAT) that Nigerians already pay on goods and services.

According to the finance minister, the decision comes on the back of the FG’s desire to bridge existing revenue lags against piling expenditure by the government.

An excise, or excise tax, is any duty on manufactured goods levied at the moment of manufacture rather than at sale.

Data extracts from the Nigerian Communication Commission (NCC) disclosed that as of the first quarter of 2022, the telecommunications industry contributed about 12.9 per cent of the country’s overall GDP, indicating the significance of the industry in the overall wealth creation of the economy.

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The Idea of imposing an excise levy on the telecoms sector allows the FGN to expand its non-oil tax revenue without necessary deterring demand for an essential service, as the telecom sector remains a high-growth, high-value industry.

For context, the total number of Telcom subscribers recorded CAGR of 6.1 per cent over the past 5 years, to record at 206.5 million subscribers as of Jun-22.

Looking forward, we expect that the 5.0 per cent excise duty on telecom services will boost the FGN tax base without hurting revenue in the telecom industry in the short run.

Our view is supported by the perceived high inelasticity of the telecom services and the fact that Nigeria is a high-growth and high-volume market. For listed companies, we do not see the impact of a levy on their overall Net revenue.

We anticipate consumers will adopt a cost-insensitive approach due to the unavoidable need to use Telcom services in our daily activities; telecom services can now easily be considered a customer staple.

~United Capital

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