Governments in the MENA region should champion taxation reforms for greater mobile connectivity, says new GSMA report

July 10, 2017

Reducing Excessive Mobile Sector-Specific Taxation Would Bring Economic Benefit to Consumers, Businesses and Governments

London : The GSMA today announced that seven MENA countries, Algeria, Egypt, Jordan, Morocco, Saudi Arabia, Tunisia and Turkey, could improve access to mobile connectivity by reforming their mobile taxation regimes. In its latest report ‘Delivering Mobile Connectivity in the Middle East and North Africa (MENA)’, the GSMA provides an overview of key general taxes, such as VAT, corporation tax and import duties, as well as additional sector-specific taxes and regulatory fees applied to mobile operators in the MENA region. The report also estimates the potential impacts of tax reform to illustrate how it may improve affordability and investment.

“In the Middle East and North Africa, mobile connectivity is a critical enabler of economic growth and social development, amounting to 1.4 per cent of the region’s GDP,” said John Giusti, Chief Regulatory Officer, GSMA. “However, in the seven markets analysed, taxation behaviours, ranging from high revenue fees to special taxes on mobile communication services or handsets, negatively affect affordability for consumers and industry investments. In the current economic climate, governments should be inclined to foster, not hinder, economic growth.”

Excessive taxation ignores the positive socio-economic contributions of the mobile sector. Special taxes on mobile communication services or on handsets for example, can be the biggest barriers standing in the way of people using mobile services, particularly for the poorest sectors of the population. Similarly, higher corporate and revenue taxes on mobile operators increase costs and negatively impact investment in advanced networks and services.

Key Report Findings

The research reveals the distortionary impacts of sector-specific taxation and highlights the potential economic benefits of rebalancing them. Examples of sector-specific taxation practices include:

• In Egypt, mobile services are subject to a VAT rate that is eight percentage points higher than the general rate;

• In Tunisia and Jordan, higher corporation tax rates apply to mobile operators, at 35 per cent and 24 per cent respectively;

• In Jordan and Turkey, excise taxes are levied at relatively high rates of 26 per cent and 25 per cent (five per cent for data);

• In Algeria and Egypt, there are as many as eight different regulatory fees, leading to tax complexity; and

• Fees in Jordan and Turkey account for nearly 11 per cent and 17 per cent of operator’ revenues respectively.

Reforms could instead lead to greater socio-economic benefits for these countries. For example, the GSMA estimates that reducing the Special Tax to 12 per cent on mobile services in Jordan would have the potential to generate 570,000 new mobile connections. In another example, the analysis estimates that removing the Communications Services Provision (CSP) tax in Saudi Arabia would have the potential to increase CAPEX by US$312 million. Lastly, longer spectrum licence terms and transparent renewal processes would provide greater certainty about future operations and investment incentives for operators.

“There is unique opportunity for governments in the Middle East and North Africa who want to champion even greater connectivity and digital inclusion,” continued Giusti. “Reducing excessive sector-specific taxation will benefit consumers, businesses and governments by reducing costs, encouraging the take-up of new mobile services, and boosting GDP and overall tax revenues in the longer term.”

The report can be found at: www.gsma.com/mobilefordevelopment/programme/connected-society/delivering-mobile-connectivity-mena-review-mobile-sector-taxation-licence-extension.