South Africa’s decision to remove luxury handset tax on lower-end smartphones signals an opportunity to boost accessibility and connectivity across the continent, says Angela Wamola, head of GSM Association (GSMA) Africa.
Wamola spoke to ITWeb yesterday on the sidelines of the GSMA Digital Africa Summit in Cape Town.
To drive connectivity, SA’s National Treasury removed the 9% ad valorem tax, commonly referred to as luxury tax, on smartphones within the below-R2 500 price range.
Ad valorem duties are taxes levied on commodities as a certain percentage of their value. For smartphones, the duties are charged at a flat rate of 9%, classifying them as luxury goods. In May, Treasury confirmed the luxury tax on entry-level smartphones had been removed.
While this is a singular action, there is already progress on the ground, revealed Wamola. “Once government made the effort to eliminate the luxury tax, demand surged in terms of the sales of entry-level smartphones that were priced at the R2 500 price point. They were 49% higher in July, compared to March.
“People had that ability to say, ‘for the same price point of about R2 000, I can now buy a smartphone rather than a smart feature phone or a feature phone’. They now have access to the smartphone at the same price point, simply because the luxury tax was removed.
“The local smartphone market also saw an increase in market share of smartphones priced at that range…with that share increasing from 23% in March, to 31% in July, signifying stimulated demand.”
Numbers game
The GSMA also used the summit to release the findings of its studies, including its Accelerating Smartphone Adoption in Africa report.
The GSMA surveyed eight countries across the continent, including SA, both in urban and rural areas. The study included focus groups, interviews and questionnaires across device manufacturers, regulators, policymakers and mobile operators.
According to the industry body, addressing the usage gap – those who live in areas with a mobile broadband network but who are not using mobile internet – is a global challenge. The usage gap is particularly prominent in Africa.
Wamola explained that while the African continent has on average close to 70% in terms of 4G coverage, only 30% of the population use mobile internet.
Progress in inclusive access and connectivity is a challenge, only manifesting among 30% of the population, she stated.
“The 70% that is offline face a multitude of barriers, including but not limited to, affordability of the device and of data, digital literacy, relevant content and whether it’s available in the local languages. This becomes exacerbated by the fact that some individuals with smartphones have never gone online.”
Wamola said that in Africa, entry-level smartphones cost 26% of the average person’s income. For the poorest 40%, the cost jumps to 64% of their income, and for the next 20%, the cost reaches 87%. “We must understand that if we want to have inclusive connectivity, the price point becomes a main challenge.
“There is the price point and policy reforms, in terms of what governments can do and their role to bring costs down. Good practices like what we saw in South Africa earlier this year…are part of those initiatives that allow a huge bracket of people to be able to afford the device, because that tax has been taken away.
“More can be done, because it was just 9%. We can start looking at customs duties as well, or any duties that are levied on entry-level devices. It’s up to governments to define what that entry-level cost is because it differs country-to-country, depending on the gross domestic product (GDP) per capita.
“Going further than the luxury tax, I think all customs and duties on phones should be removed. On average, in Africa, about 30% to 40% of the cost of the device goes to taxes.
“We need to partner with governments, so that they understand it’s not about removing taxes on an entire smartphone range; rather it’s the low entry-level devices for inclusive connectivity.”
Accelerating smartphone adoption
According to GSMA Intelligence, closing Africa’s mobile internet usage gap by 2030 could add around $700 billion to Africa’s GDP, while transforming lives through access to education, healthcare and financial services.
Mobile networks cover 95% of Africa’s population, yet only about 40% use mobile internet. The widening usage gap − driven mainly by high device costs, limited digital literacy and a shortage of local content − is the continent’s greatest connectivity challenge, states the industry body.
As a result, the GSMA highlights that SA’s tax reform on entry-level smartphones shows how fiscal policy can make digital access more inclusive, which is an approach it urges other African governments to replicate.
“New connectivity models, including community networks and satellite solutions, are extending reach to remote areas but these alone cannot close the gap. Real progress depends on affordable devices, relevant local services and digital skills, ensuring coverage translates into participation.”
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