Countries with weak tax administrations, large informal sectors, and limited capacity to raise revenue tend to develop tax policies more driven by expediency than by principle. Where the principle tells us that consumption taxes should be broad and neutral, the opportunity often leads to taxing specific goods and services to generate maximum income with minimum effort.
VAT has become widespread on the African continent over the past decades and is a crucial source of revenue in many cases, but VAT is a sufficiently complex tax for both administration and taxpayers, which means that in many developing countries it often covers only a limited pool. large companies.
Widespread access to mobile communications and the use of mobile devices to manage payments and all kinds of daily life tasks have given African governments a whole new, beautifully packaged tax base.
Taxing mobile communications offers governments the same advantage as traditional excise duties on fuels or tobacco products: a small number of businesses can be a springboard for a large number of consumers. When such an opportunity presents itself, governments will be quick to open the door!
Spread the word
African governments have taxed the mobile communications sector on the left, right and center in recent years, flooding it with special taxes or import duties on mobile devices, regulatory fees based on turnover, corporate income surcharges, among others.
But of all these new developments, indirect taxes on mobile voice and data services passed on to consumers is the most important trend. 20 African countries already levy this type of indirect tax and many others are steadily increasing their ranks, from Senegal and Côte d’Ivoire to Uganda and Zimbabwe.
Like other tax experiments, this one was spread by imitation. Even the smallest African countries are jumping on the bandwagon in search of additional income, a need that the current pandemic has made all the more pressing.
Guinea-Bissau, a nation of 1.8 million people, whose tax revenues do not exceed 9% of GDP, this year introduced a special tax on telecommunications, intended for various public investment programs. The tax was introduced by the 2021 state budget and is levied on voice calls and mobile data, among other services, amounting to 5 FCFA per minute on voice calls – around 0.75 euro cent – or 5% of the amount billed for mobile data services.
Equatorial Guinea, with 1.4 million inhabitants and tax revenues of 7% of GDP, introduced a telecommunications tax last year, like its Central African neighbors. The tax was regulated in the 2020 state budget and is levied on all telecommunications services at a rate of 10%, which is especially relevant when it comes to mobile communications and internet services.
The introduction of these taxes did not come without resistance, but – spoiler alert – governments got the better of consumers in most cases.
Advantages and disadvantages
Taxes on mobile communications have obvious advantages. They can generate significant income, which will only grow in the years to come as more of the population access mobile services. 3G coverage in sub-Saharan Africa increased from 63% in 2017 to 75% in 2019 and 4G has doubled from 25% to 50%. Yet the region is home to more than half of the world‘s population that is not covered by mobile broadband, so this tax base has plenty of room to expand.
Additionally, taxation of profits in capital intensive sectors with large upfront deductions tends to generate limited short-term income for many African countries, while indirect taxes on mobile services provide governments with benefits. immediate tax revenue.
The drawbacks of these taxes, however, are no less obvious: access to mobile telecommunications and data services in developing countries is a key instrument for economic development and social progress.
The imposition of excise duties on mobile services penalizes most of the population and the smallest economic operators in what is today a basic necessity. Taxing mobile services also penalizes investment in a continent with vast rural areas where network expansion is particularly costly for telecom operators.
Choosing between income mobilization and economic progress is an overwhelming dilemma. Unfortunately, not all African nations will be able to make the wisest choice.
Founding partner, Lobo Vasques
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