Impact of taxation on mobile connectivity in Sub Saharan Africa highlighted in new GSMA report
The GSMA has announced findings from its latest report, ‘Taxing Mobile Connectivity in Sub-Saharan Africa: A review of mobile sector taxation and its impact on digital inclusion’.
The report provides an overview of the tax and fee regime applied to mobile services and its impact on affordability and investment in Sub-Saharan Africa. It explores how mobile sector taxation can raise the affordability barrier in the region, undermining digital inclusion efforts. It also discusses how uncertain and complex taxation regimes affect operators’ ability to invest in infrastructure rollout.
“Mobile connectivity is a critical enabler of economic and social development but in many countries, particularly developing countries, the mobile sector is over-taxed relative to its economic footprint,” said Mats Granryd, Director General, GSMA. “The excessive taxation applied to the mobile sector ignores its positive economic contributions and leads to negative affordability and investment impact. In the current economic climate, it is paramount for governments to foster, not hinder, growth.”
Findings from the research demonstrate the distortionary impacts of sector-specific taxation, highlighting the potential economic benefits of rebalancing sector-specific taxes and regulatory fees.
In Sub-Saharan Africa, more than 420 million people (43 per cent of the population) subscribed to a mobile service at the end of 2016; but the region faces a significant digital divide with only 26 per cent of the population subscribed to a mobile internet service at the end of 2016;
In 2015, the mobile sector paid, on average, 35 per cent of its revenues in the form of taxes, regulatory fees and other charges in the 12 Sub-Saharan African countries for which this data is available. Around 26 per cent of the taxes and fees paid by the mobile industry related to sector-specific taxation rather than broad-based taxation;
Mobile network operators’ (MNOs) contribution to government tax revenues outweighs their size in the economy. For example, in the DRC, sector revenues accounted for 3 per cent of GDP in 2015 while mobile tax payments represented more than 17 per cent of total government tax revenues;
For 27 countries in the region where data is available, the total cost of mobile ownership (TCMO) for purchasing a handset and 500 MB of data per month represents, on average, 10 per cent of monthly income, well above the 5 per cent threshold recommended by the UN Broadband Commission;
MNOs in the region have invested $37 billion in their networks over the past five years. However, a combination of frequent tax changes and the high number of taxes levied on MNOs increases the complexity and operational burden; and
Countries that have a higher level of taxes and fees as a proportion of sector revenues tend to have relatively low levels of readiness for mobile internet connectivity.
The report recommendsrebalancing sector-specific taxes and regulatory fees can promote connectivity, economic growth, investment and fiscal stability. A number of principles for reforming sector-specific taxation and fees should be considered by governments in Sub-Saharan Africa in order to align mobile taxation with that applied to other sectors and with the best practices recommended by international organisations such as the World Bank and the IMF:
Reduce sector-specific taxes and regulatory fees, reduce complexity and uncertainty of taxes and fees on the mobile sector, remove consumer taxes that target access to mobile services and support effective pricing of spectrum to facilitate better quality and more affordable services.
The report can be found here