NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, December 14, 2005

Governments must recognise that they have an important role in creating the right environment for telecommunications to grow.

This study is the first of its kind covering emerging markets and focusing on developing public and private partnerships between the mobile industry and governments to eradicate the digital divide.

East Africa has the highest tax burden on the mobile telephone industry in Africa.

Uganda, with about 1.3 million mobile handsets, is ranked second after Turkey among the 50 countries in the world with the highest taxation on mobile handsets and services. Tanzania is ranked sixth, and Kenya ninth.

This information is contained in the Mobile Tax Report published by Deloitte & Touche in August for the GSM Association (GSMA). GSMA is a body that represents the interests of over 680 mobile operators in 210 countries worldwide by enhancing the value of mobile services globally.

The report was presented to the International Telecommunication Union – the UN body that governs and regulates international standards for the world’s telecom environment – in November at the World Summit on the Information Society (WSIS) in Tunis, Tunisia, where delegates said lowering of cost barriers such as the cost of handsets, services and taxes will provide a sustainable pathway to eliminating the digital divide.

Delegates attending the summit resolved that the International Telecommunication Union should put pressure on developing economies to revise their telecommunication policies create the right environment for telecommunications to grow.

The Ugandan government has since July this year failed to finalise and publish the new telecommunications policy; for the past five years, the sector has been running a duopoly of national telecoms operators Mobile Telephones Network (MTN) and the Uganda Telecom Ltd (UTL).

According to the report, Brazil, Argentina, East Africa and other African governments in the study – with the exception of Nigeria and Angola – appear to apply high tax levies through a combination of taxes on both the usage and the sale mobile phones.

The study says that the 10 markets with the highest taxes on mobile telephony are Turkey, Uganda, Brazil, Syria, Zambia, Tanzania, Argentina, Ecuador, Kenya and Ukraine.

Cited in the study are fixed taxes paid at the time of subscription and tax charges paid after subscription by mobile telephone users. Others are traditional sales, variable taxes levied on mobile telephone use like value added tax and taxes due on the importation and sale of mobile handsets.

“Closely following Turkey is Uganda with overall non-recoverable taxes on importation of 27 per cent, a value added tax rate of 18 per cent and an excise rate of 12 per cent. All this leads to a tax proportion of 29.9 per cent in the total annual cost of mobile ownership,” the report says.

During the 2004/05 budget reading, Uganda announced an increase in mobile phone airtime (phone call credit) duties to 12 per cent from 10 per cent and a VAT increase to 18 per cent from 17 per cent, a move it expected to generate Ush36 billion ($19.7 million) and Ush5.2 billion ($2.9 million) respectively.

According to the report, Tanzania has a tax proportion of about 26 per cent while Kenya with about 4.4 million mobile handset owners has a tax proportion of about 24 per cent in the total annual cost of mobile ownership.

The report also says that, while the mobile phone is widely recognised as an equivalent to fixed communications in terms of providing connectivity, there are still significant differences in some countries in the tax treatment of these two communication mediums.

Turkey and Uganda are still cited as having the highest difference between fixed and mobile tax rates. The 12 per cent excise duty in Uganda is payable on mobile but not fixed telephony.

The report also points out Tanzania and the Democratic Republic of Congo are the only countries in the region that still impose Customs duty on imported mobile handsets. Tanzania’s mobile handset tax has been recorded as one of the highest, at well above 30 per cent joining Cameroon, Mexico and Ghana.

In Tunis, Hamadoun Toure of the Telecommunication Development Bureau, a body working under ITU, said that ITU through the UN is petitioning developing countries to revise their tax policies under their national ICTs policies in order to solve the “digital dilemma,” for their countries.

Governments must recognise that they have an important role in creating the right environment for telecommunications to grow.

Policy factors including taxation may have a significant impact on the price consumers pay for their handsets and services.

The same handsets and services that can drive up the gross domestic product,” Mr Toure said.

Craig Ehrlich, chairman of the GSMA said that the association is encouraging mobile phone manufactures to produce low cost handsets for the developing world. “The wholesale cost of the cheapest mobile phone is set to fall to $25 by the end of 2006 compared with $50 in early 2004,” he said.

This study is the first of its kind covering emerging markets and focusing on developing public and private partnerships between the mobile industry and governments to eradicate the digital divide.