The curious squeeze on MTN Nigeria

The additional demand for $2bn in back taxes from MTN Nigeria through the Office of the Attorney General of the Federation lends credibility to suspicions that the actions on the leading telecoms firm are premeditated and seek a predetermined goal. It is unclear to both watching investors and citizens the purpose of government’s actions. In the absence of clarity, therefore, what is evolving is a signal to investors to be even more wary and circumspect about investing in Nigeria at a time when the country needs more investments than ever.

The quantum of funds involved, the matter of previous approvals and waivers as well as Senate clearance and now re-occurrence of the same issues leave a trail of confusion. There is a need for clarity, circumspection and action that promotes the mutual interests of Nigeria and organisations and persons who invest in our economy. Currently, the atmosphere is so foggy no one can see clearly.

Nigeria through the Central Bank recently asked MTN Communication Nigeria Limited and four banks to refund cumulatively $8.14bn in dividend payouts to its shareholders over a period of 10 years allegedly for using unauthorised certificates of capital importation. The CBN also hammered the banks that facilitated the transactions, namely Stanbic IBTC Bank, Standard Chartered Bank, Citibank and Diamond Bank. The four banks are required to cough out $16m.
MTN then revealed on September 4 additional demand for back taxes from the Office of the Attorney General. While the AG’s office estimates a sum of $2bn, MTN admits a figure of $700m. The firm says it has settled those taxes through the proper channels of tax authorities and is surprised at the demand coming from the office of the country’s chief law officer.

Nigeria accounts for more than a quarter of MTN’s total subscriber base spread around 22 markets. MTN through massive and aggressive investments helped to spur the growth of the GSM sector and telecommunications in Nigeria. CEO Rob Shuter in a call to investments analysts affirmed the commitment to Nigeria and its determination to stay.

Central Bank of Nigeria later clarified that it would refund MTN the $8.1bn in local currency when it answers the demand for a refund of monies in dollars transferred to shareholders outside the country. CBN Governor Godwin Emefiele clarified in an interview with this paper that the crux of the matter of the bank’s demand is the alleged “unauthorised conversion of a loan of $399m to preference shares by the MTN and the banks and thereafter the repatriation of the sum of $8.1billion with CBN final approval”.

Emefiele added: “The facts from the last examination which commenced in March 2018 is that at the inception of the company the shareholders inflowed the sum of $402million and reported that $344million was equity and $59million as loan. The examiners later discovered that in its 2007 audited accounts, MTN’s auditors reported that the investment of $402million was stated as $2.99million in equity and $$399million as loan, a statement that conflicts with their earlier disclosure and by which CCIs had long been issued to the company. Soon after, the company through its bankers approached the CBN for the conversion of the loan of $399million to preference shares.”

The handling of the alleged breaches by MTN by the Federal Government have raised many issues and doubts. Analysts question the real problems at stake or if there is more to this issue than what both MTN and the government are saying to the public.

On the surface, the allegations paint the picture of a cocktail of malpractices perpetrated by MTN. When the telecom sector regulator slammed a fine of $5.2billion on it for failure to register SIM cards in 2015, it was a clear case of negligence and impudent disregard for rules. However, it won sympathies from many quarters as a leading investor in the country. The government eventually reduced the fine to $1billion.

In the instant case, the Central Bank of Nigeria points to a failure to comply with regulations and attempts at falsification of facts and figures. MTN denies these. Critical questions for the banker of last resort include why it failed to flag these alleged defaults over a ten-year period, why it gave MTN clearance at the Senate hearing on the matter and why the same issues are cropping up now.

The more curious and disturbing angle is the involvement of the Office of the Attorney General of the Federation as tax collector. Does the participation of the AG speak to a failure of the Federal Inland Revenue Service or distrust of its operations?

There are many lessons. Asking for back taxes over a long period points to lax enforcement of the rules over the period or at best failure to act promptly. There is an enabling environment for ineptitude as well as corporate indolence and laxity.

More importantly, both the Central Bank of Nigeria and the Office of the Attorney General owe the nation clarity on the issues. Their communication on the matter has not been forthright and has left many questions unanswered. MTN is not a small fry and ranks as one of the foremost players in Foreign Direct Investment into Nigeria. Investors and analysts are watching keenly to see even-handedness and uprightness in Government’s dealing with the firm. How it plays out would determine the attitude of investors to Nigeria.

Handle with transparency and circumspection.