Taxes and fees imposed on the telecom sector are impeding the growth of mobile services in African markets, a new report notes.

The levies imposed on mobile consumers and operators include corporation tax, turnover tax and revenue tax, together with the one-off licence fee, the one-off spectrum fee, universal service obligation, the variable licence fee and the variable spectrum fee. These levies have undermined efforts to make mobile services more accessible, mainly to the poor, notes the report released by GSMA, a telecom research organisation.

“Sector-specific taxes and fees can be regressive, that is, they may have a disproportionately greater impact on the poorest households by raising the cost of mobile services across the population without regard for capacity,” notes the report.

According to the policy manager for Africa at GSMA, Shola Sanni, the role of taxation is critical because it can either advance or hinder the development of the telecom sector.

“In reality, tax policies don’t often reflect the development goals that many governments want for the mobile economy,” said Ms Sanni. “There is a need to harmonise our desire for digital inclusion and the advancement of the digital economy; we need to reflect that in the tax policy we create.”

According to Ms Sanni, East Africa has too many consumer taxes.

“There is excise duty on air time, SMS, mobile money and devices; and what all these taxes do cumulatively is to lower the appetite of the consumer to take on the mobile services,” she said.

In Rwanda for example, the consumption tax on telecommunication services has risen from 8 per cent to 10 per cent of service revenues in recent years.

But Patrick Nyirishema, director-general of Rwanda’s telecom regulation agency said that the prices of 3G Internet were still lower compared with neighbouring countries, while plans were in place to bring them down further.”

Tanzania was cited as having high levies, where mobile services specific tax payments stood at 12 per cent of market revenue, while standard tax as percentage of market revenue stood at 20 per cent.

Excise taxes have been cited among levies that could lower consumption and prevent the realisation of the full volume of positive spillovers from the sector.

For example, excise duty comprises 84 per cent and 68 per cent of sector-specific taxes in Tanzania and the Democratic Republic of Congo.

As mobile money transfer grows in the region, governments are targeting the business to generate new tax revenues.

In 2014, consumers in Kenya, Uganda, Rwanda and Tanzania transacted $45.75 billion through their mobile phones — translating into 32 per cent of their combined GDP— up from $4.86 billion or 3.4 per cent of GDP in 2009.

In Kenya, mobile money transfers and other financial transactions attract a 10 per cent duty.

Tanzania levies a 10 per cent tax on mobile money transaction fees while Uganda levies a 10 per cent tax in addition to 14 per cent tax on revenues from all mobile services including mobile money.

DRC is planning to introduce a tax on financial transactions, that would also apply to m-money services.

Mobile money transfers

The GSMA report states that taxes on these services have the potential to increase the cost of mobile money transfers, as operators pass them to consumers. This is particularly a concern for transactions of small denominations that are typically generated by the poorest sectors of the populations.

However, tax authorities need revenue to fill state coffers and, according to Ms Sanni, it is a balancing act.

“What we are advocating is best practice taxation policy which recommends broad-based taxation approach to avoid sector specific taxation,” she said.

For instance, the Kenya government exempted mobile handsets from VAT in 2009. In the three following years, the VAT reduction was followed by a 200 per cent rise in handset sales and growth in penetration from 50 per cent to 70 per cent between 2009 and 2011, above the 63 per cent across Africa.

“This is an example of how the taxation policy can have a positive impact on digital and financial inclusion,” said Ms Sanni.

Removing telecoms-targeted taxes could increase connections.

According to the GSMA report, a reduction in the excise tax on mobile services in Tanzania from 17 per cent to 10 per cent could bring in two million connections, a 5 per cent increase, and generate $549 million in GDP (1 per cent increase) and $11 million in tax revenues.