Kenya and Tanzania have joined Uganda in introducing prohibitive taxes on telecommunications services. Kenyans will be paying more for data as the telecom industry passes on the cost of an increase in excise duty payable on data. While Uganda has finally retreated from a disastrous sin tax on social media services in favour of a more lucrative levy embedded in the pump price for fuel, the Treasury could not resist the temptation of imposing a 12 percent tax on airtime.
Tanzania, on the other hand, followed in Uganda’s footsteps to introduce a tax on mobile money transactions.
These taxes partly reflect the fiscal crisis governments in the region are grappling with. Yet, as experience has shown, these taxes might yield much for the pain they inflict on consumers and, in the extreme, might even result in a drop in aggregate revenues for the sector if consumers are forced into foregoing, or cutting back on their consumption of mobile telephone services. Uganda has been in this space before and that is what probably informed the recent change of tack.
East Africa’s treasury secretaries are probably going for the telecommunications sector because it is tantalisingly low-hanging fruit. Yet targeting it is likely to kill the wave of innovation that would have positioned the economies for a faster rebound.
Imposing an additional tax on any sector during the current lockdowns is also detrimental. With the majority of people confined at home and continuity in learning increasingly dependent on the ability to have data, telecommunications is no longer a luxury but an essential service. Imposing taxes that make the service less affordable is akin to shooting oneself in the foot since the ripple effect will manifest in less pleasant ways.
Mobile telephony and the value-added services that come with it have been transformational for Africa and it is not surprising that the continent leads in the usage of mobile money. In a region of poor physical infrastructure, mobile telephony leaped over physical constraints, accelerating economic velocity in previously unimagined ways. Mobile money is the only way hundreds of millions on the continent interface with any formal financial service.
Taxing mobile telephony and its associated services is not inherently wrong. In a largely informal economic setting, taxing telephone services may as well be the only way of bringing informal players into the tax loop. The question is, how much tax is a fair tax on the sector and the user?
The double-digit rates aside, there are also philosophical questions to deal with. Excise duty on calling credit can be defended because it creates value. What value is created when one simply deposits or receives money into their mobile money account? And in a situation where calling credit is used as a currency to pay for other services, what are the likely knock-on effects of the tax down the line?
Unless well-coordinated, taxes on the sector can also disrupt regional initiatives such as the One Network Area, if a differential between partners diverts international traffic to neighbours. Government technocrats need to be more creative and stimulate private sector consumption and business growth.