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TMCNet:  Nigeria Media Industry in the Digital Age - What Lies Beneath? [analysis]

[August 18, 2014]

Nigeria Media Industry in the Digital Age - What Lies Beneath? [analysis]

(AllAfrica Via Acquire Media NewsEdge) ACCORDING to National Bureau of Statistics (NBS), the publishing, motion pictures, sound recording and broadcasting sub-sectors contributed a total of ?1.74 trillion (approximately 2%) to the country's rebased Gross Domestic Product in 2013.


The Nigerian media industry has evolved from its three historical divisions: print media (newspapers, magazines); electronic media - television (cable and terrestrial), radio; and outdoor. With the evolution of the media industry and the enormous power of the internet, the social media (a.k.a. new media) has taken roots.

Over the years, television and radio are regarded as veritable tools of communication due to their wider reach. This is more so as almost everyone has access to either a television or a radio. Even in rural areas, radio is commonly accessed albeit with antiquated technology. In recent times, mobile phones are manufactured with capability to receive radio signals and sometimes television signals. The advent of micro-blogging sites such as facebook, twitter and the likes as well as several channels for voice, data and bulk text messaging platforms changed the paradigm at a dimension that could never have been conceived. Many businesses now leverage on these new media platforms to advertise and sell their products and services.

Electronic media sector of the Nigerian media industry is faced with several challenges due to its dynamic nature. These include infrastructural, economic, political, regulatory and fiscal challenges, which affect the ability of companies operating in this sector to be successful.

One specific challenge that beset new operators of television and radio is the requirement to pay a license fee for an initial term of five (5) years in the first instance, subject to renewal, to the National Broadcasting Commission (NBC). The fee varies depending on the media platform and location of the television or radio station. A license lapses and stands revoked if unutilised within two (2) years of issuance. In addition, television and radio broadcasters are required to pay an annual levy of 2.5% of their income to NBC. The licence fees are usually amortised over the license period and treated as deductible expense, in addition with the annual levy paid by the operators for income tax purpose.

Also, the electronic media sector is plagued with several tax challenges which seem to contribute to the uncertainty faced by players in the industry. The following are the obvious tax issues in the industry: Value Added Tax (VAT): Generally, media companies like other players in the service industry have no legitimate claim to offset input VAT incurred against output VAT charged by them due to the nature of their business. The inability of operators to apply their input VAT to offset output VAT has continued to impact the bottom line and returns to investors as input VAT incurred are expected to be expensed through the income statement or capitalised where it relates to capital expenditure. With the tough challenges on the top revenue line, the impact of the additional VAT cost on the profit or loss account is better imagined. The question arises as to whether the Government is willing to amend the provision of Value Added Tax Act on input VAT to make it attractive to existing and potential investors in service sectors including electronic media.

Withholding Tax (WHT): Another important issue in electronic media industry is the applicability of WHT on services provided by television and radio broadcasters. Media broadcasters have claimed in recent time that services such as broadcasting airtime and program, box office, online video and advert placements should constitute services rendered in the ordinary course of business rather than professional services as posited by the tax authorities. As the existing legislation on WHT does not adequately address the peculiarity of the services provided by media houses, there is a need by tax authorities to issue guidelines to provide guidance in this regard.

Companies' income tax (CIT): The electronic media sector is capital intensive and most of the challenges faced by broadcasters are around the issue of funding for infrastructure and equipment. Therefore, media companies who have incurred huge capital expenditure to acquire broadcasting equipment are entitled to claim investment allowance (at 10%) of the costs, in addition to capital allowances as provided under Second Schedule of Companies Income Tax Act. There are additional incentives such as infrastructure tax relief, employment tax relief, work experience acquisition relief and many more which are equally accessible by media companies. In many conversations with operators in the sector, it remains doubtful that they have acquainted themselves with these benefits due to hasty generalisation that the country is tax hostile.

Transfer Pricing: Companies operating in electronic media industry seek to attract viewers by building their brands. In order to achieve this objective, these companies set up other businesses, such as television and radio stations, providing mutually beneficial services to each other. Sometimes, there are strategic foreign investors and partners in order to unlock the benefits of wider reach and skills transfer. This arrangement usually triggers transfer pricing issue as the tax authorities would be keen to confirm the application of arm's length principle to transactions between these related entities.

The Government, in a bid to address some of the fiscal challenges in the electronic media industry, appears keen on implementing the policy imperatives outlined in the National Tax Policy (NTP) to diversify the economy by extending tax incentives to other non-oil sectors. However, there is need for coherence in policy formulation and implementation as the sector is nowhere near its full potential. This sentiment has also been echoed by media experts as well as practitioners who posit that the sector has the potential to contribute more than its reported share of the Gross Domestic Product in 2013.

Beyond the facade of "the show must continue" stance of men in the media sector, it must be understood that they bear scars of challenges on their inside. The government must continue to demonstrate willingness and commitment to creating friendly fiscal regimes that supports business continuity and growth. If we help each business sector unlock their full potentials, the possibilities that lie ahead are enormous.

Copyright The Guardian. Distributed by AllAfrica Global Media (allAfrica.com).

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