Taxes slow African mobile growth

Mobile telephony manufacturer Motorola, which is partnership with the GSM Association in building and dispersing sub-$30 phones into developing regions, is seeing the implications high taxes are having on consumers.

This is according Nikesh Patel, business manager for Motorola`s government and enterprise mobility solutions division.

He says taxes in Africa stand at about 18% of the total ownership of the handset, which is defeating the whole object of the "affordable phone" movement in Africa.

"For the average African, an 18% tax hike on a $30 handset is a lot of money, which ultimately slows down growth."

Gabriel Solomon, director of government and regulatory affairs at the GSM Association, says if low-cost handsets were exempted from import duties and sales taxes, 930 million handsets would be sold by 2010.

He adds high tax on mobile telephony in general is slowing down the growth of mobile communications on the continent.

High VAT and import tax regimes are increasing consumer costs. "Costly levies on telecom equipment make networks and handsets more expensive to build, and make them less affordable to the consumer."

Solomon adds that special taxes on SIM cards add another layer of cost for consumers who wish to connect.

In Uganda, more that 30c of every dollar a consumer spends on mobile services goes to the government in tax, he says. Of every $1 billion Celtel makes on the continent in revenues, $442 million goes to the government in regulatory fees and taxes.

Solomon says by lowering consumer taxes, governments would help people use mobile services, which stimulate the economy directly through employment and indirectly by boosting productivity through the velocity of economic transactions.

He says that taxing the industry puts the brakes on market growth. "Mobile services are a vital driver for the African economy as all stakeholders benefit when the market grows: consumers, the industry and government."

He adds that lower taxes mean greater long-term revenue opportunities for governments. "Cutting taxes on handsets would attract new users resulting in a net yield of an additional $25 per subscriber in annual tax revenue."

Solomon says the GSM Association holds the position that governments in Africa should embrace tax regimes that treat mobile phones as a necessity not a luxury.

Governments should keep corporate tax because mobile operators are usually proud of being among the top three largest taxpayers in Africa, but they should remove or lighten taxes that make network expansion more expensive, he says. He notes that making services more expensive prevents many people, who yearn for mobile services, from affording them.