MTN to appeal tax demand in Nigeria

MTN plans to appeal a hefty tax demand it has received in its largest market of Nigeria.

The tax dispute between MTN and Nigeria's Federal Inland Revenue Services (FIRS) pertains to a value-added tax (VAT) assessment for the periods covering 2007 and 2010-2017.

Last week, MTN Nigeria was ordered by Nigeria's Tax Appeal Tribunal (TAT) to pay $72.6 million in unpaid taxes and penalties – according to documents seen by Bloomberg which the publication said two government officials had verified.

As part of a trading update published on October 30, 2023, MTN made reference to the decision by the TAT "to uphold a principal VAT liability of US$47.8 million."

"Having reviewed this outcome and considering input from tax and legal consultants, MTN Nigeria has resolved to appeal the decision of the TAT," the group said.

Tax battle continues

This case stems all the way back to 2018 but the tax demands and authorities covering the dispute have changed a number of times.

In September 2018, Nigeria's attorney general alleged MTN owed $2 billion in tax arrears, but, after a lengthy court battle, the attorney general withdrew the tax demand in January 2020.

The case was then transferred to the FIRS and the Nigerian Customs Service (NCS) to resolve the contentious issues.

"After a series of engagements, the FIRS issued a revised total assessment of US$135.7 million, representing a principal tax liability of US$47.8 million and interest and penalty of US$87.9 million," MTN Nigeria confirmed in a published financial statement on October 30, 2023.

To clarify the interpretation of the VAT Act's provisions concerning the tax treatment of the transactions that led to this assessment, MTN Nigeria filed an appeal at the Tax Appeal Tribunal.

"The transactions in question primarily involve the alleged VAT payable on offshore training services provided to employees of the Company, transponder services provided by a non-resident company, and software licensing and upgrades," MTN clarified.

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

"Having reviewed this outcome, MTN Nigeria has resolved to appeal the decision of the Tribunal," the group said.

MTN hopes to have success like it did in Ghana in February 2023, when a $672 million tax bill was scrapped in that country.

Strong growth continues in Nigeria

Despite its tax troubles, Nigeria remains an extremely profitable market for MTN, reporting a service revenue increase of 21.4% to 1.8 trillion naira ($2.3 billion) for the nine-months ended September 30, 2023.

MTN Nigeria also added 2 million mobile subscribers in the first nine months of the year, bringing its total to 77.6 million users in the West African country.

Active data users increased by 13.3% to 43.1 million, and active mobile money wallets increased by 53.1% to 3.6 million by the end of September.

MTN had 77.6 million mobile subscribers in Nigeria as of September 30, 2023. (Source: warrenski on Flickr CC 2.0)

Earnings before interest, tax, depreciation and amortization (EBITDA) grew by 16.3% for the nine months but profit before tax decreased by 42% and capital expenditure (capex) increased by 6.9% for the period.

MTN Nigeria said it plans to roll out additional capex during the fourth quarter of 2023 to reach 83% of 4G and 10% of 5G population coverage by year end.

In addition, it plans to leverage the additional 2.6GHz spectrum that it acquired from OpenSkys in September 2023, to enhance network capacity.

"This will help us sustain growth in data traffic and further drive our Own the Home strategy by leveraging the 5G fixed wireless access devices, mobile broadband solutions, and fibre-to-the-home connectivity," the telco said.

Nigeria is South African-headquartered MTN's biggest market by subscribers and revenue out of the 17 markets it operates in across Africa.

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*Top image source: wirestock on Freepik.

— Paula Gilbert, Editor, Connecting Africa