Imposition Of VAT On Phone Usage Under The Finance Act 2019

Imposition Of VAT On Phone Usage Under The Finance Act 2019

From the 1st of February, 2020, users of mobile telephony services in Nigeria started receiving text messages from their mobile telephone network operators after every telephone call and sent text message that the higher bill for the call they made or text they sent, was inclusive of Value Added Tax.

No government official till this moment is willing to address the issue of the tax on mobile phone usage in a country assumed to have at least 172 million mobile phone subscribers. The effect of the tax is widespread and being a proportional tax, its effects are borne more by the poorer segment of the society. The Minister of Communications & Digital Economy, Isa Pantami, clearly stated, when asked on the issue of the 7.5% VAT placement on voice calls and text messages, that it was not his remit as the issue of VAT was not within his purview.

The questions that arise in the face of the silence of concerned officials are manifold and they include whether the imposition of VAT on mobile telephony usage for voice calls and text messages is legal in the light of the Finance Act? Can the VAT be extended to internet usage powered by mobile telephone network operators and other internet service providers (ISPs)? Does it amount to double taxation to pay VAT for the usage of a recharge card on which a taxpayer had earlier paid a VAT on its purchase? From a public policy point of view, is this a case of the tax administration settling for this VAT imposition due to the ease of collection without a consideration of its impact on the poorer segment of the society?

The Finance Act defines “Services” as “anything other than goods, money or securities which is supplied excluding services provided under a contract of employment” while “taxable supplies” means “any transaction for sale of goods or the performances of a service for a consideration in money or money’s worth”. A literal interpretation of the word “Services” places a telephone call or text message as a service which is “supplied” upon which VAT is applicable.

The imposition of VAT on mobile telephone usage is not a distinctly Nigerian invention. When an increment was made to the applicable VAT and surcharge levy applicable to mobile telephone usage in Bangladesh, Taimur Rahman, the Chief Corporate and Regulatory Affairs Officer at Banglalink (a subsidiary of VEON), one of the leading digital services providers in that country with almost 36 million subscribers, did not mince words in describing the act as regrettable and urged the government to “reconsider the issue to ensure the technological advancement of the country and to fulfill the dream of transforming the country into a digital one.”

None of the mobile network operators in Nigeria has had the presence of mind to advise the government on the dire effects of the imposition of a VAT of 7.5% on telephone calls and text messages on creating and growing a digital economy, it is perhaps only a matter of time before the same is imposed on internet usage which falls into the definition of “taxable supplies” under the Finance Act 2019.

When a mobile telephone user buys a recharge card online, by a vending machine or even physically should a VAT be imposed on such a purchase? Where a retailer purchases bulk quantity of recharge cards from a mobile network operator should a VAT be imposed on such a purchase since such transactions would qualify as “goods” or “services” under the Finance Act? This scenario is separate and distinct from where there has been actual usage of the recharge card through the communication network(s) of the mobile network operators. Would it not amount to double taxation to charge a taxpayer for the purchase of the recharge card itself and for the actual usage of the same through the communication systems of the mobile network providers? The purchase of a recharge card voucher should not qualify as taxable supply under the Finance Act as there is no value addition upon which a tax should be imposed but rather there is a mere exchange of money for its value stored in a voucher whether physical or digital.

While the desire of the Government to provide qualitative standard of living for its citizenry can only be realized through increased revenue generation, it is important that the Government does not resort to tax terrorism in the process. It is important to note the implications of the tax viz-a-viz the quest to participate in the digital economy which the world presently runs on. Cheap and affordable access to telephony and the internet is a must. Mobile telephony is a huge part of the lives of at least 80% of the populace and while the mode of collection of this indirect tax is easy to enforce, its effects on the populace should be carefully weighed.

Is it possible for some categories of users to be exempted? Should there be a threshold before users are charged? Should there be allowable deductions where calls are made in the course of business? Is Voce over Internet Protocol affected by this VAT? Is the popular WhatsApp calls affected by this or is tax in that regard part of the Digital Services Tax contained in the Finance Act for companies having significant economic presence in Nigeria?

The government should weigh the cost/benefit analysis of the Mobile Telephony VAT. Huge Revenue or a people cut off from the capacity to communicate with one another in a cheap, affordable manner and if by chance, the internet usage charge is ever effected, a populace caught adrift from the world digital economy could be the result.

This article was written by Tunde Esan, Legal & Tax Practitioner.

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