East Africa
 Download the study: 'Taxation and the Growth of mobile in East Africa'.
In East Africa, Cutting Mobile Taxes Today Would Boost Government Revenues Tomorrow
East Africans pay taxes of between 25% and 30% on mobile phone services, compared with an average of 17% across Africa, according to a study by consultancy Deloitte for the GSM Association, the global trade association for mobile phone operators, in collaboration with GSM Africa. 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.
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 goes ahead with its plan to introduce mobile specific taxes, tax receipts would 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
- An increase in Gross Domestic Product of up to KES 33,845 million, 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
- An increase in Gross Domestic Product of up to TZS 171,328 million, 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
- An increase in Gross Domestic Product of up to UGX 179,896, the equivalent of 0.6%, between 2007 and 2017
- In Rwanda, if the government introduces excise duty at 5%, half the proposed level of 10%, that would lead to -
- A decrease in total tax receipts of up to 3% between 2007 and 2017
- A decrease in Gross Domestic Product of up to RWF 21,047 million, the equivalent of 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," said 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."
"We do not believe that taxation should be designed on the basis of short-term considerations," said Mohsen Khalil, director of global information and communication technologies at the World Bank. "The indirect benefits to the economy of having affordable access to telecom services far outweigh any short-term benefit to the budget."
Tax levels on mobile services in Africa
Source: Deloitte study for the GSMA
Note: Rwanda has yet to levy the proposed 10% excise tax
Other key findings of the Deloitte study - the economic contribution of mobile:
- In 2006, the mobile industry accounted for 5% of Kenya's Gross Domestic Product, 3.5% of Rwanda's GDP, 4.6% of Tanzania's GDP and 3.6% of Uganda's GDP;
- The mobile industry employs about 500,000 people in the four countries;
- More than 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 telecommunications connections in the four countries.
Notes :
The study, undertaken by Deloitte for the GSM Association, quantified the economic contribution of the mobile industry in East Africa and analysed the impact of lowering excise duties in Kenya, Tanzania and Uganda and the potential impact of introducing excise duty in Rwanda.
In estimating the economic impact of the mobile industry in the East African countries, Deloitte carried out both static and dynamic analysis.
Static analysis refers to the impact of mobile services for a particular period of time and does not seek to estimate the longer-term impacts on economic welfare. Publicly available and operator data, along with interviews and assumptions based on economic literature were used to estimate the value of the mobile communications to the economy in terms of employment and GDP for each East African country. The total economic impact was defined as consisting of the following elements:
- The direct impact from the mobile operators;
- The indirect impact from other industries related to mobile services;
- The indirect impact from the surplus enjoyed by end users in terms of productivity improvements; and
- The indirect impact from more qualitative social benefits enjoyed by the population.
The dynamic relationship between mobile communications and GDP was also analysed. That is, the longer term impact that investment in mobile communications may have on general economic welfare and GDP growth rates in particular. Regression analysis, based on cross section data for developing countries, was undertaken using a similar approach to Waverman et al (2005). For this specific group of countries, Deloitte estimated that a 10% increase in penetration could increase the GDP growth rate of 1.2%.
For further information please contact: gsolomon@gsm.org |
