Removing VAT on mobile sales in Kenya has increased sales and benefited the economy through higher GDP, says the GSMA, but other taxes threaten to undo all the good work. Guy Daniels reports.
The GSMA, the trade body for the global mobile industry, yesterday released its preliminary findings from research undertaken into mobile taxation in Africa. It forms part of a larger project being undertaken by Deloitte that will be published later this year.
The data released so far focuses on Kenya, which has long been an innovative testing ground for mobile – from banking and payments to social inclusion projects. It suggests that the growth in mobile penetration in Kenya, which it says has increased from 50 per cent to 70 per cent since 2009, is due to the removal of the 16 per cent value added tax (VAT) levied on handset sales.
Gabriel Solomon, Head of Regulatory Policy at the GSMA, said that this reduction in VAT revenue will be offset by the rise in operating taxes from greater phone usage:
“Kenya has shown great foresight in abolishing mobile handset taxes making mobile services more affordable for the wider population. Mobile operators will contribute 33 per cent more in tax this year than they did prior to the handset tax slash and will contribute around 8 per cent of Kenya’s GDP this year.
We call on all African governments to consider abolishing handset taxes and follow the successful example of Kenya.”
The research also shows that taxation on the total cost of ownership for a mobile phone in Kenya fell from 25 per cent to 17 per cent over the last five years. However, despite the abolition of VAT on new sales, the tax remains in place for airtime, and the government also levies a 10 per cent excise duty. This means that mobile taxation in Kenya is still just above the average for sub-Saharan Africa.
Then there’s the spectre of a brand new taxation that is emerging in Africa – as governments struggle to (or even try to) balance their economies and show a reluctance to fully accept that increased telecoms usage results in higher GDP growth. The new tax, known as SIIT (Surtax on International Inbound Call Termination), centrally fixes the prices that operators can charge when terminating international inbound calls – thereby decreasing call volumes and increasing the rates for outbound calls to reciprocating African countries. Not a good scenario.
In Congo Brazzaville, the Deloitte research showed that prices rose by 111 per cent since the SIIT was imposed in May 2009. Rates in Gabon rose 82 per cent, in Ghana they rose 58 per cent and in Senegal they increased by 50 per cent, all due to the SIIT. Solomon adds:
“The SIIT is an unfortunate and opportunistic move by some governments. The African continent is now connected to the global information economy by fibre optic cables which can herald a new wave of development but the SIIT threatens to damage this. The mobile industry is typically one of the top tax payers in most African countries and we have seen its importance for economic development but the SIIT is one tax too many; it carries the risk of significant collateral damage and should be abolished.”
So far, the Kenyan government has refrained from introducing SIIT, which is one of the reasons the GSMA is keen to use the country as a best-practice example of what a relatively progressive government taxation policy can achieve in the long term. According to the research, in 2011 the mobile communications industry contributed more than KES 400 billion (€3 billion) to the Kenyan economy and employs almost 250,000 people.
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