The many troubles of MTN group in Nigeria may both economic and political play the federal government of Nigeria, according to Ron Klipin, an analyst at Cratos Wealth in Johannesburg.

Klipin, was reacting as federal government has slammed MTN Nigeria with a $2 billion tax demand.

This is another curve ball directed at Africa’s biggest wireless carrier less than a week after it was ordered to refund $8.1 billion in illegally repatriated funds.

Klipin in a chat with Bloomberg said about the fines that “This could be an economic and political play by Nigeria”.

“The Nigerian economy is looking for additional sources of revenue and at the same time the government wants to be seen as tightening up the regulatory framework in the country.” Klipin added.

The additional scrutiny on MTN comes as President Muhammadu Buhari seeks re-election for a new four-year term in a February vote.

Buhari

His administration has pledged to fight corruption in Africa’s most populous nation, including tax avoiders and companies acting unscrupulously.

MTN continues to strenuously deny the allegations being made by the Central Bank of Nigeria and has provided further clarity on the company’s position.

MTN on its own said it had been in talks with Abubakar Malami, Attorney-General, over concerns around tax compliance; but it was billed all the same.

The company in a statement said it was billed for importation of foreign equipment and payments to foreign suppliers, all spread across a period of about ten years.

MTN outlined the tax dispute and refuted both accusations in a statement on Tuesday, yet faces an uphill battle to convince investors it won’t end up shelling out for either or both offenses in its largest market. The shares extended their slump, falling 17 percent to an almost 12-year low by the close in Johannesburg.

“We remain resolute that MTN Nigeria has not committed any offenses and will vigorously defend its position,” the Johannesburg-based company said.

The office of Nigeria’s attorney general calculated that MTN owes $2 billion related to the import of foreign equipment and payments to suppliers over the past decade.

It asked the South African company to carry out a self-assessment in response, but last week rejected the company’s findings, which concluded that it had owed — and paid — $700 million.

MTN reported the ongoing dispute for the first time Tuesday.

Last week, the Nigerian central bank told MTN to return funds it alleges the company illegally transferred out of the country over eight years through 2015.

That accusation put the carrier’s planned share sale in Lagos in jeopardy, while the sanctions may restrict its ability to pay dividends.

On the CBN allegations, MTN said that it is  both regrettable and disconcerting that despite the historic engagements with the Nigerian authorities by MTN Nigeria, the senate investigation into the CCI matter, and the multiple tax assessments done by the Nigerian tax authorities over many years that were satisfactorily concluded, that these matters are being reopened.

Tobe Okigbo MTN Corporate Relations Executive said: “From the CBN’s own letter and subsequent statements, it is clear that there is no dispute that the capital captured in MTN’s books and for which CCIs were issued was imported into Nigeria, and this is acknowledged explicitly by the CBN.

It is equally clear that Nigerian law provides for guaranteed unconditional transferability of funds through an Authorised dealer in freely convertible currency relating to dividends or profits attributable to the investment, payments and in respect of loan servicing where a foreign loan has been obtained.”

He went on to say: “All dividend repatriation done by MTN Nigeria to its shareholders was done on the basis of its equity capital and all the historic dividends were declared against valid equity CCIs and in fact no preference dividends were declared and no interest in respect of these preference shares was paid. This means that it is incorrect to suggest that the conversion of a shareholder loan to preference shares has any relation to the repatriation of dividends. The two are simply not connected and we are trying to understand this position that the Central Bank has taken.”

Speaking on the Attorney General’s ‘demand notice’ for historical tax obligations, Mr Okigbo said: “MTN has conducted a detailed review of these claims, and provided evidence of tax remittance to the Attorney General’s office.

The Attorney General’s notice indicates that he is rejecting this evidence. We believe that all taxes due to the Nigerian government have been paid and these allegations have not been raised by any of the revenue generating agencies that MTN engages with regularly, and from whom MTN has received numerous awards for compliance.”
MTN Nigeria will continue to engage with the relevant authorities on all these matters and we remain resolute that MTN Nigeria has not committed any offences and will vigorously defend its position.

Update on the CBN letter on foreign exchange
MTN Group and the original shareholders injected a total of $402, 625,419 into MTN Nigeria between 2001 and 2006 in the form of loans and equity.

These initial inflows were the basis for the issuance of various legacy CCIs obtained from Authorized Dealers in accordance with regulations. The inflow of capital has been confirmed by the CBN.

The CCI process is essentially in place both for the protection of investors as well as to provide the CBN with documentary evidence for monitoring capital inflows and outflows. Although over time the CCIs have been re-issued, consolidated and re-constituted to reflect the changing MTN capital and shareholding structure, the amount of 402, 625,419, has remained the same.

One aspect of the changing capital structure was the conversion of shareholder loans to preference shares. It is important to note that all the historic dividends were declared against valid equity CCIs and in fact no preference dividends were declared and no interest in respect of these preference shares was paid.

The Attorney General’s notice of intention to recover tax
The Attorney General notified MTN that his office made a high-level calculation that MTN Nigeria should have paid approximately $2,0 billion in taxes relating to the importation of foreign equipment and payments to foreign suppliers over the last 10 years and he requested MTN Nigeria to do a self-assessment of the taxes in this regard that have been actually paid.

In August 2018 MTN submitted comprehensive documentation to the office of the AG. MTN Nigeria has also completed an initial assessment of the full period which indicates that total payments made to the tax authorities in regard to these foreign imports and payments in aggregate are $700 million.

There are valid reasons for the differences between the actual payments and the AG high-level assessment.
We were notified by the office of the AG last week that they have not accepted the documentation presented and they have given notice of an intention to recover the $2.0bn from MTN Nigeria.

Based on the detailed review performed MTN Nigeria believes it has fully settled all amounts owing under the taxes in question.