The Nigerian Senate has fully rejected the planned increase of the Value Added Tax (VAT) rate by the federal government and is instead proposing a new tax on communication services.

Ventures Africa earlier reported that the Nigerian Federal Executive Council (FEC) approved an increase in the VAT rate from five percent to 7.2 percent. This hike was expected to take effect by January 2020, however, lawmakers in the country have moved against it.

According to the Chairman of the Senate Committee on Army, Senator Ali Ndume, increasing VAT would leave Nigerians reeling from the effect, because it will invariably lead to inflation.

After rejecting the VAT hike, the Senate leader presented the government with an alternative – a bill proposing a nine percent tax on electronic communication services such as voice calls, Short Message Service (SMS) and Multimedia Messaging Service (MMS). The same percentage will apply to internet services and also Pay per View TV Stations (the likes of Netflix, Iroko TV and Amazon).

“The tax shall be levied on Electronic Communication Services supplied by service providers. For the purpose of this clause, the supply of any form of recharges shall be considered as a charge for usage of Electronic Communication service,” the bill stated.

The bill adds that the tax shall be paid together with the electronic communication service charge payable to the service provider by the consumer of the service. This bill has not been passed into law yet until it goes through two more readings.

The implication of this bill, if approved, means that for every #100 airtime a consumer buys, one gets only #91. The same rate will apply to higher purchases and other goods or services rendered and service providers are required to file a tax account to account for the tax.

The funds generated are expected to be channelled into the federation account through the Federal Inland Revenue Service (FIRS). An explanation for some of these new taxation policies is Nigeria’s decision to no longer rely on oil to generate revenue. Hence the FG is looking to create alternative means of income.

But as opposed to the VAT increase which applies to all goods and services, affects every citizen equally regardless of the income level, and does not support Nigeria’s economic reality, the proposed communications service charge employs a rather fair method. The fee charged in tax will be dependent on the amount of service consumed.