Detrimental surcharge tax threatens African economic growth
The GSMA has issued preliminary findings from research undertaken into taxation. Initially focused on Africa, the research shows that mobile handset sales have soared by 200 per cent in Kenya following the government’s 2009 decision to slash the 16 per cent Value Added Tax (VAT) levied on handset sales. The research was undertaken by Deloitte for the GSMA as part of a larger global benchmarking study, the full data of which will be published later this year.
“Kenya has shown great foresight in abolishing mobile handset taxes making mobile services more affordable for the wider population, with the growth in uptake contributing significantly to the Kenyan economy,” said Gabriel Solomon, Head of Regulatory Policy, GSMA. “Mobile operators will contribute 33 per cent more in tax this year than they did prior to the handset tax slash and will contribute around 8 per cent of Kenya’s GDP this year. We call on all African governments to consider abolishing handset taxes and follow the successful example of Kenya.”
Handset sales
Since the Kenyan government’s abolition of the VAT on handset sales, mobile penetration has increased from 50 per cent to 70 per cent. In 2011 the mobile communications industry contributed more than KES 400 billion to the Kenyan economy. Additionally, the research indicates that in 2011 the mobile communication industry as a whole employs almost 250,000 people in Kenya.
“The report’s findings indicate that consumers, particularly in developing countries, are price sensitive and that tax cuts could boost consumption of mobile services,” said Chris Williams, Deloitte Telecoms partner.
More Decisive Action Needed
Despite the research finding that taxation on the total cost of ownership for a mobile phone in Kenya fell from 25 per cent to 17 per cent over the last five years and the abolition of VAT, mobile taxation in Kenya still remains just above the average across sub-Saharan Africa as a 10 per cent excise duty as well as VAT on airtime is still levied.
The research also found that a new type of tax is emerging in Africa: the ‘Surtax on International Inbound Call Termination’ (SIIT), which centrally fixes the prices that operators can charge when terminating international inbound calls. The SIIT distorts price competition, which has a negative impact on business and consumers.
The research found that where the SIIT has been imposed, the level of inbound international traffic has fallen and prices of outbound calls have increased due to the reciprocation of higher termination prices by operators in other African countries. The SIIT has had the following impact where it has been applied in Congo Brazzaville, Gabon, Ghana and Senegal:
- In Congo Brazzaville, the price of inbound traffic has risen by 111 per cent and operators report that inbound traffic fell by 36 per cent between May 2009, when the tax was introduced, and May 2011;
- In Gabon, prices rose by 82 per cent when the SIIT was imposed in August 2011;
- In Senegal, prices rose by 50 per cent and operators report that the number of international call minutes terminated on its network decreased by 14 per cent in the first five months; and
- In Ghana, prices rose by 58 per cent and operators report a 35 per cent decrease in international call minutes terminated on its network in the month after the imposition of SIIT compared to the month prior to its introduction, and an 18 per cent fall in call minutes in the six months after its introduction compared to the six months prior.
“The SIIT is an unfortunate and opportunistic move by some governments. The African continent is now connected to the global information economy by fibre optic cables which can herald a new wave of development but the SIIT threatens to damage this,” said Solomon. “The mobile industry is typically one of the top tax payers in most African countries and we have seen its importance for economic development but the SIIT is one tax too many; it carries the risk of significant collateral damage and should be abolished.”
