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Nigeria: MTN tax bill case may not be over just yet

By David Whitehouse
Posted on Tuesday, 14 January 2020 15:33

A woman walks past an advertising poster for MTN in Lagos, August 28, 2019. REUTERS/Temilade Adelaja

Foreign investors are yet to be convinced that MTN Nigeria’s tax dispute with the government has been resolved – or that Nigeria is about to provide clear and transparent corporate taxation.

Shares in MTN Nigeria surged after the country’s attorney general on January 10 cancelled a $2bn demand against the telecommunications operator for alleged unpaid taxes.

Investors say the market’s reaction may be premature.

  • The tax demand “doesn’t appear to have been withdrawn, it has just been handed over to the Federal Inland Revenue Services (FIRS) and Nigerian customs,” says Mark Ansley, a fund manager and analyst at Argon Asset Management in Cape Town.
  • Those agencies should have been handling the matter in the first place, he says. “I don’t regard this as being resolved.”
  • The withdrawal of the MTN demand “appears to be another political move in order to persuade MTN Group to dilute the MTN Nigerian holding down” by selling more shares to local Nigerians, Ansley says. He sees the share-price reaction as too optimistic.

The withdrawal of the MTN demand came shortly before President Muhammadu Buhari gave final approval on January 13 to the tax reforms in the 2019 finance bill. The law allows taxation of non-resident companies making profits from providing digital services in Nigeria if they have a “significant economic presence” in the country.

IPO still on hold

It’s “quite possible” that the recent governance structures that MTN has put into place at its Nigerian subsidiary as well as group-wide have improved its relationships in the country, says Peter Takaendesa, head of equities at Mergence Investment Managers in Cape Town.

“Unfortunately the referral of the case to the FIRS diluted the message given how aggressive Nigerian authorities have been towards MTN and other international companies,” Takaendesa says. While the risk of a material negative outcome appears to have been reduced, he says, it’s still too early to regard the matter as resolved.

The company plans a Nigerian IPO once the tax dispute is resolved, but the FIRS referral is likely to put a brake on those prospects in the short term, Takaendesa says.

  • “Market conditions have also not yet improved materially as the Nigerian economy is still growing below trend and several previous fines on MTN have dented investor confidence.”
  • Takaendesa is also cautious of reading too much into the decision in terms of the prospects for MTN’s mobile money in Nigeria.
  • He notes that while MTN Nigeria and Airtel received mobile money agent licences last year, they were passed over when other local telecoms companies were granted payment services bank licences, which allow mobile money operators to offer a broader and deeper range of financial services.
  • The reasons for that decision were not fully explained, but Mergence believes it was likely due to strong lobbying from the banking sector.

“I would not be confident in investing capital in Nigeria,” Ansley says. “They have proven to be inconsistent and erratic in dealing with foreign investors.”

Bottom Line: Investors will need to see full resolution of the MTN Nigeria tax case before concluding that tax predictability has really improved.

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