GSMA Calls for Reduction of Mobile-Specific Taxation
Published on: 1st Sep 2014
The GSMA has called upon governments in Sub Saharan Africa to review their approach to the increasing tax burden imposed on the mobile industry.
The GSMA released two studies that explore various aspects of mobile-specific taxation in Africa and show that this burden is stifling economic growth in those countries that have introduced mobile-specific taxation.
The first report, 'Surtax on International Incoming Traffic (SIIT) in Africa', examines the impact of SIIT in Sub-Saharan Africa and concludes that the introduction of SIIT can lead to less revenue for mobile operators and governments and higher prices for consumers. A second report, 'Sub-Saharan Africa Universal Service Fund (USF) Study', found that most of these funds are not succeeding in delivering their stated goal of widening access to telecommunication services and that alternative market-based solutions are more effective.
"Sub-Saharan Africa is the fastest-growing region globally, with 328 million unique mobile subscribers and an annual growth rate of 18 per cent over the last five years. However, with subscriber penetration of just 37 per cent, there is clearly still huge potential for greater growth ahead," said Tom Phillips, Chief Regulatory Officer, GSMA. "Beyond further adoption of basic voice services, the region is starting to see an explosion in the uptake of mobile data. However, a short-term focus by some countries on generating revenue through increasing the SIIT, combined with the continued imposition of USF levies despite accumulated funds that are not being effectively employed, will clearly have a negative impact on the domestic mobile sector and other businesses in the region."
Report Highlights Negative Economic Impact of SIIT in Africa
The Surtax on International Incoming Traffic (SIIT) report agrees with a recent publication from the OECD that found that imposing higher charges for the termination of international inbound traffic suppresses demand. Similar to the GSMA's study, the OECD report concludes that those governments that impose higher termination charges do not see their revenues increase proportionately.
The report outlines the impact for consumers, governments and businesses:
- Consumers - SIIT effectively fixes prices for international traffic termination and in these countries where it is imposed, the SIIT has caused the price of terminating international incoming calls to increase by an average 97 per cent, with an increase of up to 247 per cent in Burundi;
- Governments - SIIT has already shown its potential to create economic losses to governments that impose it. The report estimates that, in the absence of the SIIT, mobile operators could have terminated an extra 1.2 billion international minutes and generating $86 million in revenues from June 2010 to March 2014, indicating that governments could have gained an extra $27.5 million across the period had the SIIT not been introduced; and
- Businesses - SIIT creates significant extra costs to African businesses that trade with, and therefore call, businesses in countries where the SIIT has been imposed, negatively affecting regional integration. Evidence from mobile operators indicates that nearly 40 per cent of all international incoming traffic is from countries in the region, and in some countries, such as Tanzania, over 50 per cent of calls originate within Africa.
- USF Report Highlights Need For Alternative Methods to Achieve Universal Service
The Sub-Saharan Africa Universal Service Fund Study finds that USFs in the region do not appear to be the most appropriate mechanism for providing universal access and service, and to furthering social and economic improvement in a proactive, cost-effective and transparent manner. Generally, the report found significant deficiencies in fund structure, management and operation throughout the SSA region. The report concludes that consideration must be given to disbanding inactive funds and returning the remaining monies to the operators who paid the levies in the first place and, where this is not feasible, gradually reducing the levy collected for either inactive or low activity funds and gradually phasing out the funds. The study found that alternative approaches to achieving universal service, such as license obligations, are often more effective than USFs.
Both reports have identified countries within the region that have recognised the negative impact of both the SIIT and USFs on trade and regional integration. The two studies conclude that in light of these negative consequences, other governments should re-consider the SIIT and USF and assess the specific impact on their economies and on economic development for the region as a whole.
"Mobile is an important contributor to the economy of Sub-Saharan Africa, accounting for more than six per cent of the region's GDP, more than any other comparable region globally," continued Phillips. "As our research has shown, taxation as a proportion of the total cost of mobile ownership in the region is also higher than the global average, a factor that makes mobile services less affordable for end users. The SIIT is clearly being used as an opportunistic short-term revenue tool by some governments and, in reality, USFs have become an unnecessary levy on the telecommunications industry. We strongly feel that eliminating harmful mobile-specific taxation would benefit consumers, businesses and governments by encouraging the take-up of new mobile services, improving productivity and boosting GDP and overall tax revenues in the longer term."