(Ecofin Agency) – Digital transformation has taken off once more on the continent following the Covid-19 pandemic. African states are committed to strengthening telecom infrastructure and developing network coverage. However, for these investments to be fully productive, it is still necessary that the services offered remain accessible to the most modest incomes. This is why, by overtaxing these services, States sometimes shoot themselves in the foot. A signed file WeAreTech.Africa.
In 2010, the tax volume indexed to the telecommunications sector in sub-Saharan Africa was already the subject of heated debate between governments and mobile telephone operators. The first, anxious to ensure new financial resources for the public treasury, have not ceased to proclaim a fair gain on a sector in growing wealth. For its part, the World Association of Telephone Operators (GSMA) has never ceased to call out the danger that excessive taxation represents in the long term, not only for the viability of telecom companies, but also for the development . Ten years later, the tax issue has evolved but not in favor of telecom operators.
Sub-Saharan Africa has become the most taxed region in the world, ahead of North Africa-Middle East and Asia Pacific.
In 2017, taxes multiplied in the market, driven by the growth recorded over the years by the telecom sector, which has been able to attract more customers through new value-added services. Sub-Saharan Africa was considered, seven years ago, as the third most taxed region in the world, following Central and Eastern Europe and the European Union, but ahead of Latin America. According to the report ” Global Mobile Tax Review 2010/2011of GSMA and ITU, it became the first, ahead of North Africa – Middle East and Asia Pacific. Average tax payments were 25% of sector revenue. In 2016, the telecom sector contributed $13 billion to sub-Saharan Africa’s tax revenue. In 2018, this contribution increased to $15.6 billion. 2020, however, saw a decline of $600 million compared to the previous year.
Threat to digital inclusion
If taxation on business activities weighs on the profitability of telecom operators, it is above all sectoral taxation that is the most worrying because it directly affects the purchasing power of consumers who are at the heart of the entire telecom market. If people can no longer subscribe to telecom services that have become expensive due to high taxation, telecom operators fear a drop in their income.
This drop in income will have a direct impact on the profitability of telecom companies and, indirectly, on the gains made by States. The World Bank estimated in 2019 at nearly 85% the number of people living on less than $5 a day in sub-Saharan Africa. In the region, where the mobile penetration rate was 46% in 2020, mobile internet accounted for 28% of the internet penetration rate estimated at 34% on the continent by Hootsuite et We Are Social. The average cost of a 1.5 Gigabit mobile data plan was $6.1, or 6.4% of gross national income (GNI) per capita according to the ITU. However, according to the Broadband Commission, a data plan is considered affordable when it represents 2% of income.
The average cost of a 1.5 Gigabit mobile data plan was $6.1, or 6.4% of gross national income (GNI) per capita according to the ITU. However, according to the Broadband Commission, a data plan is considered affordable when it represents 2% of income.
Taxing the internet, as some countries like Uganda do, which has set it at 12%, makes the service more expensive and effectively excludes more people from the digital economy. The tax also endangers the activity of several companies such as those in the e-commerce segment or video on demand.
According to GSMA, of the 1.084 billion people in sub-Saharan Africa in 2020, 303 million people (28%) were connected to the Internet by mobile. 570 million people (57%) were covered by a mobile network but did not use the Internet and 210 million (15%) were not covered by a mobile network at all. A total of 495 million people subscribed to mobile services, or 46% of the population. The smartphone adoption rate was 48%. A situation that the Alliance for Affordable Internet (A4AI) explains by the high cost of smartphones. Some telecom equipment manufacturers offer more basic devices, but which remain inaccessible to the majority of the population in many African countries because of import taxes. It is also aware of this reality that the government of Chad has exempted from tax for five years, since last January 24, importers of telephones for wireless cellular networks (mobile telephones and smartphones of all types), information processing machines (computers and tablets, fixed and mobile, of all types) and dedicated accessories.
Obstacle to financial inclusion
Having become over the last ten years a strong segment of telecommunications, with several million users and billions of dollars exchanged, Mobile Money is also today the subject of growing interest from African States. Four years ago, a few rare countries yielded to the temptation to tax this new dynamic. This is the case of Uganda which introduced a tax of 0.5% on the withdrawal of money in July 2018. The same year, Tanzania fixed its tax at 1% before reducing it to 0.5 % in October. And in 2019, Zimbabwe decided to levy 2% on the value of each transaction.
However, the growth recorded by Mobile Money, reinforced during Covid-19, has finally convinced more governments to tap into this windfall to finance post-pandemic economic recovery. The 0.2% tax on electronic transactions thus appeared in Cameroon in 2021. In Ghana, it is rather a tax of 0.5% that the government instituted this year. In these various markets, both old and new, taxation has always aroused strong opposition from consumers who have denounced an increase in their charges. In the Ghanaian parliament, the tax on Mobile Money even gave rise to a physical confrontation between pro and anti-tax.
The disputed tax has allowed the government of some countries, such as Uganda, to register twice as much revenue as expected (the Uganda Revenue Authority estimates that from July to December 2018, the tax generated 28.3 million or $13.5 million more than $14.8 provided by the State). But this tax has hampered the financial inclusion of the poorest who access various services from their mobile. The World Bank reveals that it has shifted the wealthy to the banks while low-income populations, who depend on family remittances to live, have seen their meager means shrink further.
The World Bank reveals that this tax has shifted the wealthy towards the banks while low-income populations, who depend on family remittances to live, have seen their meager means reduced further.
The United Nations Capital Development Fund (UNCDF) says the tax has demotivated consumers of off-grid renewable energy, usually in rural areas, who had become accustomed to paying their bills by mobile. This situation is perceived as a danger to the profitability of the market which has created many jobs in the country. The same scenario can be transposed to the e-commerce or agriculture sector where many small farmers can already buy agricultural inputs, carry out micro-savings, etc., from Mobile Money. As in the segment of telecom services by mobile, telecom companies do not refuse to be subject to taxes. According to GSMA, they are in favor of effective taxation of the Mobile Money segment ” without unnecessarily hampering the growth of the sector and negatively impacting marginalized groups who use it “. Income tax is favored because the more it increases with the earnings of service providers.
Muriel EDJO
A multiplication of taxes
Taxation of the telecom sector in most Sub-Saharan African countries is a combination of general taxation and sectoral taxation. The first includes standard VAT, corporation tax, income tax and social security for companies and employees, while the second includes sector-specific consumption taxes, such as VAT on mobile services and excise duties on charge cards and mobile phones.