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MultiChoice sees a bad movie replay in Nigerian tax bill

For a country struggling to diversify its economy away from oil, a fossil fuel shunned by investors and consumers, you’d think Nigeria would think twice about targeting foreign companies with its now familiar shakedown playbook.

MultiChoice, the SA satellite pay-TV group with a big presence in the West African country, is the latest victim of President Muhammadu Buhari’s administration, which has slapped it with a $4.4bn (or more than R60bn in today’s money) tax bill.

The most recent news in this saga, which has been running since July when the Federal Inland Revenue Service ordered banks to freeze the accounts of MultiChoice to recover R63bn in alleged unpaid taxes, is that MultiChoice has agreed to pay almost $20m just so it can appeal against the tax bill at a Nigerian tax tribunal.

It all started after MultiChoice allegedly refused authorities access to records for auditing that the tax collection agency is unwavering in its belief would have shown that the company was involved in the under-remittance of taxes.

MultiChoice has denied this, saying the matter was apparently based on unfounded allegations that its Nigerian business has not fully disclosed all existing subscribers to authorities.

But it would have to part ways with the equivalent of R300m to authorities in Nigeria to defend its position, which seems unfair as it is not immediately clear that the money would be returned to the company if it is able to prove it has been on the right side of the law.

The tax bill is huge, accounting for almost a fifth more than MultiChoice’s latest annual revenue from more than a dozen countries and roughly 15% more than its market capitalisation of R55bn. Even so, investors seem unbothered, if the share price is anything to go by. When news broke in July, the stock plunged more than 7% but it has since recouped all of the losses, notching up more than 24% in gains since July 7.

It is safe to assume that investors’ high-stakes gamble is rooted in the history of Nigeria, which has established a horrible pattern of targeting foreign companies to plug holes in its budget.

The $500bn Nigerian economy relies on oil for about 90% of foreign exchange, while its tax kitty relative to the size of its GDP is a measly 6%, well below the average of 19% for the rest of Africa. Companies like MultiChoice, Shell and MTN contribute the highest share to the kitty, at 50%, an unusually large contribution that speaks to the dismal level of tax compliance among the working population.

Since taking over in 2015, Buhari has been drawing up budgets that expose his government’s fiscal constraints. It did not take long for his government to go after MTN Group, stunning Africa’s biggest mobile phone operator with the equivalent of a R76bn fine for failing to cut off unregistered users.

MTN, which makes a quarter of its core earnings, in Nigeria, agreed to pay about 30% of that amount. In 2018, the SA company was in the Nigerian government’s crosshairs again, accused of sending $8.1bn abroad without proper paperwork. It settled that dispute with just $53m in December 2018. And the $2bn tax bill levelled against MTN in 2019 was dropped more than a year later.

So there’s a strong likelihood it will settle for far less than the $4.4bn it demands from MultiChoice.

It may help Nigeria plug holes in its spending plans and be immaterial to MultiChoice’s bottom line, but it inflicts lasting damage on Nigeria as a destination for foreign capital and comes at a time when investors and consumers are turning their back on oil in the global energy transition.

As countries across the world set carbon emissions targets and phase out petrol-fuelled cars in favour of electric, and more and more businesses adopt eco-friendly business practices, demand for oil will slowly but surely decline. And Nigeria will need companies like MultiChoice and MTN to help diversify its economy, but not if it continues to arbitrarily pull out its shakedown playbook on them.

BUHARI HAS BEEN DRAWING UP BUDGETS THAT EXPOSE HIS GOVERNMENT’S FISCAL CONSTRAINTS

OPINION

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2021-10-22T07:00:00.0000000Z

2021-10-22T07:00:00.0000000Z

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