/ 17 June 2016

Lowering mobile costs and taxes can benefit governments

Is mobile technology the malaria-fighting secret weapon Africa’s been waiting for?
Is mobile technology the malaria-fighting secret weapon Africa’s been waiting for?

Mobile technology will play a crucial role in spurring a new wave of growth and development throughout the continent. But we’re still a long way from seeing the full effect mobile can have in enabling social and economic transformation. 

So said delegates in Rwanda at the World Economic Forum on Africa, which focused on Connecting Africa’s Resources through Digital Transformation.

Delivering mobile connectivity to citizens will be instrumental in turning this year’s theme into reality. 

Access to mobile in Africa has reduced poverty, improved infrastructure and services, and provided access to healthcare, education and financial services. 

The mobile industry is also a key driver of economic growth and employment. It is predicted to contribute more than US$166-billion to sub-Saharan Africa by 2020 (equivalent to 8% of expected gross domestic product) and support in excess of six million jobs. 

By 2020, it is forecast, just 49% of the population of sub-Saharan Africa will have a mobile subscription. 

Why have we not been able to connect all Africans? This is a recurring question among government leaders across Africa. 

The truth is that mobile operators can’t reach the unconnected by themselves. African governments need to offer a supportive business and policy environment that will sustain the growth of the industry in the long term. 

Only then will mobile access become ubiquitous, driven by the necessary investments in infrastructure.

A key obstacle lies in the high levels of mobile-specific taxation in some African markets. This risks stalling consumer uptake of mobile. High taxation holds back the adoption of new technologies and the extension of mobile services to the hundreds of millions of people in Africa who remain unconnected. 

Many governments continue to tax mobile services as though they are a luxury, but mobile services are key enablers for a country’s economic and social development. They are a vital tool that can deliver healthcare, education, financial inclusion and stimulate entrepreneurship, especially for those at the base of the economic pyramid.

In Nigeria, for example, there are now proposals to create a new 9% tax on communication services. This is in complete contradiction to the ambition of the same government to expand mobile connectivity in Nigeria, where mobile operators paid US$850-million in taxes and regulatory fees in 2014. 

The cost to operators inevitably translates into higher prices for consumers. 

The cost of using a mobile phone represents, on average, 5% of personal income in Nigeria; it is higher for people in the lowest income brackets, making basic mobile services unaffordable for many. And this is by no means an isolated example. In Ghana, taxes on devices and usage account for almost a quarter of the cost of mobile ownership, significantly above the regional average. 

Mobile is one of the most heavily taxed sectors in Tanzania, with operators contributing more than 11% of total government tax revenues, and services in the Democratic Republic of the Congo are subject to an excise duty of 10% in addition to VAT, which directly applies to consumer prices.

Yet research and taxation modelling show that lowering taxes can increase revenue for governments in the medium term: consumers, particularly in developing countries, are price-sensitive, and tax cuts often boost consumption of mobile services.

Taxation that affects mobile services has a disproportionate impact on incentives to invest in network roll-out.

Creating a balanced tax structure kicks off a chain reaction that can only benefit governments as the barriers to affordability are lowered and network investment is increased, which promotes mobile penetration. 

Greater penetration drives further economic and infrastructure development and increases productivity and employment across the economy, while delivering positive effects on education, healthcare and overall development. The resulting economic growth results in higher tax revenues for governments. 

Fostering this progressive regulatory environment in Africa will take close collaboration between the mobile industry and policy-makers. 

Only by implementing a taxation structure in which mobile is treated equally with other services can we truly unlock the digital transformation of Africa and deliver the benefits of mobile across the whole continent. The real work is only just beginning.

Mortimer Hope is director of spectrum and public policy in Africa for the Global System for Mobile Association, a trade organisation that represents 700 GSM mobile phone operators in 215 countries.