The GSM Association (GSMA) is urging African operators to stop charging luxury tax on mobile phone services, as phones are a great contributor to economic development and the gross domestic product (GDP).
Speaking during a forum discussion, at the ITU Telecom Africa 2008, in Cairo, Egypt, yesterday, GSMA chief of regulatory affairs Tom Phillips said more than 25 governments in sub-Saharan Africa levy luxury tax on mobile phone handsets. Five governments also charge luxury tax on airtime, he noted.
GSMA's research also found East Africa charged the most taxes on mobile phones, even in countries that have a highly liberalised telecoms environment.
Countries which forego charging luxury tax on mobile phone services will see increased adoption and usage of mobile services, which will in turn drive economic development, he said.
As a result, the governments will still see increased tax revenue generated from businesses rather than having to take it from citizens as luxury tax, he said.
SA levies value-added tax (VAT) of 14% on mobile phone transactions. The GSMA's chart, looking at how African countries levy VAT and other taxes on mobile services, shows that Angola, Lesotho and Nigeria charge the least.
GSMA spokesman David Pringle notes that a report assessing sub-Saharan Africa will be launched at the end of May, with a media briefing held in Johannesburg.
The most taxing
According to the GSMA, Uganda, Rwanda, Zambia, Tanzania and Kenya charge excise tax on mobile phone usage, in addition to VAT. This pushes them to top other African countries in terms of taxation on mobile services, it says.
The GSMA found Uganda has the most expensive regime, charging an excise duty of 12% in addition to the 18% VAT rate, says the GSMA.
Rwanda has proposed charging an excise duty of 10%. Currently, its VAT rate is 18% and the combined tax on mobile services would add up to 28%, making its mobile phone taxes the second highest on the continent.
Tanzania charges 7% in excise duties, with VAT coming in at 20%, while Tanzania charges 10% in excise duty and 16% VAT.
GSMA spokesman David Pringle notes that governments began to levy luxury taxes when mobile services were expensive and targeted predominantly at the urban elite.
Today, economies of scale have driven down prices and they have become vital communications tools for rich and poor alike, he says.
However, many governments have not updated their taxation policies to reflect that change from luxury goods to economic necessity, he says.
Pringle also notes there is often a dichotomy of interest between the finance ministry, which sets taxation policy, and the telecoms ministry, which sets regulatory policy.
"The finance ministry often has a short-term view, an annual budget to meet, and can regard mobile as a cash cow. But taking a medium-term view and removing luxury taxes would actually increase the total tax paid by the industry," he says.
The GSMA's study also found that 10% increase in mobile penetration levels led to 1.2% increase in the annual GDP. In Rwanda, the mobile phone industry contributed 3.5% of the country's GDP in 2006. At the time, there was only 4% mobile penetration in that country, indicating there is still great scope for growth, it says.
In Tanzania, the mobile sector contributed 4.65% of the total GDP in 2006, while in Uganda, it contributed 3.7%.
The GSMA's East Africa study was conduced by Deloitte. It used publicly available and operator data, along with interviews and assumptions based on economic literature.
The study also analyses what would happen if African governments lowered or removed mobile-specific taxes.
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