GSMA urges East Africa - cut taxes and raise government revenues

Tuesday, 20 March 2007 01:00  |  Michael Schwartz

The study reasons that a cut in mobile services taxes would lead to a reduction in tariffs, which would then boost usage of mobile services. Greater usage of mobile phones improves communication between businesses and their customers, fuelling economic development and lifting tax receipts from across the wider economy. Conversely, if the government of Rwanda does go ahead with its plan to introduce mobile specific taxes, tax receipts will fall in the medium- to long-term. The study found that:

• in Kenya a cut in excise duty from 10% to 5% on mobile services today would lead to an increase in total tax receipts of up to 5% between 2007 to 2017, and an increase in Gross Domestic Product (GDP) of up to US$486,416,000 the equivalent of 1.3%, between 2007 and 2017;
• in Tanzania a cut in excise duty from 7% to 5% on mobile services today would lead to an increase in total tax receipts of up to 4.5% between 2007 and 2017 and an increase in GDP of up to US$135,362,000, the equivalent of 0.8%, between 2007 and 2017;
• in Uganda a cut in excise duty from 12% to 8% on mobile services today would lead to an increase in total tax receipts of up to 2.5% between 2007 and 2017 would mean a GDP rise of up to US$103,686,000, the equivalent of 0.6%, between 2007 and 2017; and
• in Rwanda, if the government introduces excise duty at 5%, half the proposed level of 10%, that would lead to lower total tax receipts of up to 3% between 2007 and 2017 and lower GDP of up to US$38,476,092, roughly 1%, between 2007 and 2017.

"Realising that telecom services are no longer a luxury, but a basic necessity, Thailand, Bangladesh and Pakistan, have all lowered or removed mobile taxes in the last 12 months," comments Gabriel Solomon, Director, Government & Regulatory Affairs at the GSM Association. "As East Africa's governments prepare budgets for the coming year, we urge them to also review their mobile taxation policies. Consumers, private enterprise and governments would all benefit from a cut in mobile specific taxes."

A financial opinion comes from World Bank Director of Global Information and Communication Technologies Mohsen Khalil: "We do not believe that taxation should be designed on the basis of short-term considerations. The indirect benefits to the economy of having affordable access to telecom services far outweigh any short-term benefit to the budget."

While Rwanda has yet to levy the proposed 10% excise tax, Deloitte includes a chart of tax levels on African mobile services in its report. It is reproduced here to demonstrate just how diverse the rates of taxation (or in Swaziland's case, non-taxation) really are.

Tax levels on mobile services in Africa

Source: Deloitte study for the GSMA

Other key findings of the Deloitte study reflect the economic contribution of mobile:

• in 2006 the mobile industry accounted for 5% of Kenya's GDP, 3.5% of Rwanda's, 4.6% of Tanzania's, and 3.6% of Uganda's;
• the mobile industry employs about 500,000 people in the four countries;
• over one third of industry revenues in the region go to the governments of East Africa;
• 70% of East Africans live in areas with mobile coverage, but only 12% are actually connected;
• there are around 100,000 mobile payphones in East Africa ;
• mobile services account for more than 93% of the total telecoms connections in the four countries.

More info:

• www.gsmworld.com/eastafrica

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