Internet & technology

East Africa: Reform taxation laws on Telecommunications

2007-11-02, Issue 326

http://pambazuka.org/en/category/internet/44217

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In a report released by Deloitte, East African mobile operators loose a third of their revenues to governments by way of taxes and other government tariffs. The Deloitte study suggests that if Rwanda for example goes on to impose the proposed 10 percent excise tax on mobile telephones, it would have the second highest tax rate in Africa, behind Uganda

Highway Africa News Agency

In a report released by Deloitte, East African mobile operators loose a third of their revenues to governments by way of taxes and other government tariffs.

The Deloitte study suggests that if Rwanda for example goes on to impose the proposed 10 percent excise tax on mobile telephones, it would have the second highest tax rate in Africa, behind Uganda The 2006 - 2007 Deloitte study dubbed, 'Taxation and the Growth of Mobile Phone in East Africa' indicates that taxation of mobile consumers in East Africa continues to soar and that it is now almost twice the 17.4 percent global average.

The study, the second of a series commissioned by the global trade association for mobile phone operators, in collaboration with GSM Africa says that East Africans pay taxes of between 25 percent and 30 percent on mobile phone services, compared with an average of 17 percent across Africa.

Currently, excise taxes are levied at 10 percent, 7 percent and 12 percent in Kenya, Tanzania and Uganda respectively.

The Rwandan Government has proposed setting an excise tax on mobile telephony at 10 percent.

According to Tom Phillips the Chief Government and Regulatory Affairs Officer, the study quantifies the economic contribution of the mobile industry in East Africa and analyses the impact of lowering excise duties in Kenya, Tanzania and Uganda and the potential impact of introducing excise duty in Rwanda.

The GSM Association is a global trade association that represents more than 700 mobile phone operators in over 200 countries.

While at the summit the GSMA representatives also announced that regional operators MTN, Vodacom, Celtel and Orange are among the mobile operators planning to invest a tune of US$ 50 billion in the expansion and enhancement of their networks.

In their report the GSMA goes on to suggest that, if Kenya cuts excise duty on mobile telephones to at least 5 percent on mobile services today, it would lead to an increase in total tax receipts of up to 5 percent between 2007 to 2017 and an increase in GDP of up to 33,845 million Kenya shillings. This is an equivalent of 1.3 percent between 2007 and 2017.

"In Tanzania, a cut in the same duty from 7 percent to 5 percent on mobile services today would lead to an increase in total tax receipts of up to 4.5 percent between 2007 and 2017," says the report.

"In Uganda, a cut in the excise duty from 12 percent to 8 percent on mobile services today would lead to an increase in total tax receipts of up to 2.5 percent between 2007 and 2017 and an increase in GDP equivalent to 0.6 percent, between 2007 and 2017."

Rwanda has yet to levy a proposed 10 percent excise tax. The GSMA says in this report that the imposition of this excise tax in Rwanda would cause Rwanda to have the second highest tax rate in Africa, behind Uganda.

"If the Rwandan government introduces this excise duty at 5 percent instead of 10 percent, half the proposed level of 10 percent would lead to a decrease in total tax receipts of up to 3 percent between 2007 and 2017," the report says.

The report considers the impact of reducing these taxes to 5 percent in Kenya and Tanzania and 8 percent in Uganda.

It warns that if the governments in Uganda, Tanzania and Kenya were to cut mobile taxes today, the study found that their total tax receipts would actually rise in the medium to long term.

"As the governments in East Africa go into their budgeting rounds, we urge an urgent review of mobile taxation policies. Restructuring mobile taxes can be a win, win, win, for government, business and consumers and may enable governments to respond strategically to the communications needs of its people," Vitalis Olunga the Chair of GSM Association Africa said.

The report also points out that mobile retail prices are relatively low in all four East African countries.

"In Kenya and Tanzania, prices have been falling. This reduction in prices has occurred despite the operators being faced with increased operating costs, particularly in terms of higher costs of fuel and power," says the report.

"The East African operators are also disadvantaged by the fact that international connections are facilitated primarily through satellite, which is expensive compared to fibre optic cable."

In Rwanda, prices have remained relatively constant though they are expected to fall after the buying out of Terracom from Rwandatel, and in Uganda prices have been rising.

According to this study 2006 saw the mobile industry accounting for a 5 percent of Kenya's GDP, 3.5 percent of Rwanda's GDP, 4.6 percent of Tanzania's GDP and 3.6 percent of Uganda's GDP.

In 2006, the mobile industry's GDP contribution in East Africa ranged between 4 percent and 5 percent and the industry employed around 500,000 people in all the four East African countries.

Other highlights from this study shows that while 70 percent of East Africans have access to mobile networks, only 12 percent are connected.

It also says that with only 100,000 mobile payphones in East Africa, mobile services account for more than 93 percent of the total telecom

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