MTN challenges Nigerian govt’s $48m tax in court as forex crisis bites

MTN Nigeria has gone on appeal to challenge a $47.8 million tax liability imposed on it by the Federal Inland Revenue Service (FIRS) on behalf of the Nigerian government.

In its full-year 2023 financial statement, MTN Nigeria recounted its experience with former Attorney-General of the Federation, Mr Abubakar Malami. The telecoms giant said Mr Malami had, in 2018, demanded approximately $2 billion in tax arrears from the company. By implication, Mr Malami had queried MTN over alleged unpaid taxes and imposed $2 billion on the telecoms company.

Mr Malami later withdrew its demand against the firm in 2020 and referred the case to the FIRS for resolution.

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According to MTN, the FIRS reduced the initial assessment to $135.7 million, representing a principal tax liability of $47.8 million and an interest and penalty of $87.9 million after a series of engagements.

“To clarify the interpretation of the VAT Act’s provisions concerning the tax treatment of the transactions that led to the assessments, MTN Nigeria filed an appeal at the Tax Appeal Tribunal (TAT),” the 2023 financial statement read.

On 20 October 2023, the tax tribunal upheld the principal liability of $47.8 million and set aside the interest and penalty charges of $87.9 million.

MTN Nigeria said although it had made full provision for the tax liability in line with International Accounting Standards (IAS 37), it had appealed the decision of the tribunal and was awaiting the outcome.

“We remain committed to meeting our tax obligations,” the telecoms giant noted.

It was not clear in which court the MTN Nigeria has appealed its case as its media team did not respond to messages sent to them in this regard.

MTN vs Nigerian authorities

This is not the first time the telecoms company has had issues with Nigerian regulators. In 2015, the National Communications Commission (NCC) carried out a compliance audit on MTN network and found that 5.2 million unregistered customers’ lines were un-deactivated contrary to the directive by the Office of the National Security Adviser and security agencies.

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The NCC fined MTN $1000 for each unregistered SIM, summing up to $5.2 billion. The fine was later reduced to $3.2 billion after much pressure by a former United States Attorney-General, Mr Eric Holder. It was later brought down to $1.7 billion after local and international pressure.

After withdrawing its case against the NCC and the Nigerian government, MTN paid N50 billion and later N80 billion and then N30 billion.

MTN Nigeria incurs forex loss

Foreign exchange (Forex) crisis and naira depreciation in Nigeria hurt MTN Nigeria badly in 2023 as the telecoms company incurred net forex loss of N740.4 billion.

Revenue, however, grew 23 percent to N2.45 trillion in full-year 2023 from N2.012 trillion in the corresponding period of 2022.

MTN Nigeria incurred a net net forex loss of N740.4 billion in 2023 as against N81.8 billion reported in the corresponding period of 2022.

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This led to a loss after tax of N137 billion compared to a profit after tax of N348.7 billion in 2022, wiping off shareholders’ funds.

Chief Executive Officer of MTN Nigeria, said: “MTN Nigeria’s operations are exposed to foreign currency volatility on its operating and capital expenditure. The most significant of these exposures relates to the tower lease costs, which comprised the bulk of the 45-50% foreign currency exposure in our operating expenses in 2023.

“The majority of the lease costs are indexed to the US dollar but are invoiced and paid in naira. Our tower lease costs are recognised in line with IFRS 16 and IAS 21, which has had several
impacts on our financial performance.”

He said the nature of payment for tower contracts required quarterly payments using the applicable exchange rate based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the same preceding quarter for others.

Mr Toriola said MTN Nigeria anticipated a challenging 2024 as it tackled the complexity and ongoing effects of high inflation and elevated forex volatility on telecoms’ operations.

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“Given the material uncertainty these present in the near term, we have suspended our medium-term guidance for EBITDA margins. We maintain
the medium-term guidance for service revenue. In light of the negative retained earnings at the end of 2023, the Board of Directors has resolved not to declare a final dividend for 2023.”

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