Nigeria: CBN Suggests FG Tax Mobile Phone Users N100Bn
25 November 2016
Central Bank of Nigeria (CBN) Governor, Godwin Emefiele has proposed an alternative to source of revenue for the government, which is a telecoms tax for phone call conversations above 3 minutes. He also suggested that the federal government introduce a tax on properties.
Mobile phone users will be in for hard times if proposal by the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele to the federal government to introduce mobile phone call tax becomes a reality.
Speaking on the theme: “Policy options for reversing Nigeria’s economic downturn” he said the country’s economy is currently facing a classical case of “stagflation” and although the 2016 budget is well on track to tackle it, there is need to boost revenue generation base though increased taxes.
The Governor, who spoke at the 2016 Annual Bankers’ Dinner organized by the Chartered Institute of Bankers of Nigeria (CIBN) over the weekend, in Lagos, said such tax, targeted at the middle, upper class and long phone call makers, can generate N100 billion annually into the federal government coffers.
He suggested that government could explore opportunities for more revenues to wriggle out of stagflation and recession by introducing a negligible telecom surcharge to be paid by initiator of a telephone call.
“There are several ways we can raise additional revenue to finance the increased expenditure that is needed to engender fast and sustainable growth in the economy. I think we can consider introducing a negligible telecom surcharge to be entirely borne by the initiator of a call. In order to protect the poor and vulnerable amongst us, we could structure it to only take effect after the third minute of talk. Some analyses have indicated that the government could earn about N100 billion per annum from this alone,” he stated.
Emefiele explained that the surcharge will mainly be borne by middle and upper class people since many poor people do not make calls for more than three minutes.
He explained that stagflation occurs when a country’s Gross Domestic Product (GDP) is falling or stagnant while unemployment and inflation are rising, all simultaneously.
“As recent data from the National Bureau of Statistics (NBS) indicate, Nigeria’s GDP growth decelerated by 0.36 per cent and 2.1 per cent in the first and second quarters of 2016, respectively. More also, the rate of price inflation for the months of September and October were 17.9 per cent and 18.3 per cent, respectively, while official statistics also indicate that the country’s unemployment rate increased to 12.1 per cent and 13.3 per cent during the first and second quarters,” he stated.
Emefiele said that stagflation is a difficult condition for policymakers to deal with, insisting that no single macroeconomic policy can address rising inflation and slow growth simultaneously, because fighting inflation may require implementing policies that might, in the short term, be inimical to economic growth, whereas expansionary policies to stimulate growth usually worsen inflation.
Still on taxes, the CBN boss said government could also consider introducing minimal property taxes across the country. “This not only raises money for the government but also could be a veritable weapon against corruption since it creates a database of who really owns homes in this country. Another option to consider would be to fully implement the 2003 Cabotage Act. This is Act stipulates that all cargoes and passengers in the inland and coastal waters be transported by ships and ferries built, owned, crewed and manned by Nigerians,” he said.
Emefiele explained that contrary to the requirement of this Act, there are several foreign-owned vessels providing shipping services locally. “Out of about 600 ships that operate within our waters, only about 60 of them are owned by Nigerians and are mostly idle, in violation of the Act. Industry sources suggest Nigeria may be losing as much as N2 trillion annually from this anomaly. In addition to raising revenue, a full implementation of the Act could also spur job creation, capacity building, and significant backward integration,” he said.
Speaking further, he said that exchange rate is simply a price that is determined by the forces of demand and supply.
He said that while the proposal may seem controversial, variants of this policy have proven to be highly effective in other climes and even here in Nigeria.
“For example, throughout the early days of South Korea’s economic renaissance, the government intermittently used excessively stiff tariffs, quantitative restrictions and prohibitive inland taxes to effectively ban many items with potential for high imports, and simultaneously, offered generous and subsidized loans to firms for export promotion causes. In fact, at some point, about 93 per cent of total imports into South Korea were subject to one or more such restrictions,” he said.
Emefiele admitted that interest rates are a veritable tool for curtailing inflation but with inflation at over 18 per cent, the regulator would be abjectly failing on one of its cardinal objectives if it cuts interest rates at this time. “Second, for those who say we need a rate cut to spur growth, we need to remind that high inflation is highly inimical to economic growth. Indeed, many empirical studies have estimated the threshold level at which inflation becomes significantly growth retarding to be 11 per cent for developing countries. With ours at 18.3 per cent, one must question the judgment of cutting interest rates at this time,” he said.
The CBN Governor insisted that interest rates reflect not just the cost of capital but also the cost of doing business, hence, the need to also look at interest rates from the perspective of the lender. “Given that most banks have to individually provide security, power, and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates. Notwithstanding these facts, we will continue to use moral suasion to encourage commercial banks to be more considerate in interest charges on customers,” he stated.