A positive outlook – Niger’s digital inclusion and economy set to rise as a result of mobile tax reductions

July 26, 2017 | Connected Society | Middle East and North Africa | Vasilis Douzenis

Niger is among the world’s least developed countries and making mobile services more affordable, through reducing distortionary taxation, can go a long way towards supporting the country’s digital development. The government of Niger passed an amendment to the current finance act introducing reductions to mobile sector taxation. As of the second half of July, these changes will be impacting citizens of Niger across all income levels. The recent reductions to distortive, sector-specific taxation are expected to make mobile services more affordable while also incentivising investment from operators.

Recent taxation changes

With the second half of the year approaching, the National Assembly of Niger took into consideration, and subsequently adopted, the amendment act aimed at making changes to the latest finance act for full year 2017. The amendment act, which will enter into force on July 1st and will apply to the second half of the budget year:

  • Removed the fixed component of a SIM tax, the Taxe sur l’Utilisation des Réseaux de Télécommunications (TURTEL);
  • Reduced the tax on incoming international calls (TATTIE) from XOF 88 ($0.15) to XOF 25 ($0.04) per minute, which was the initial rate when the tax was introduced in 2014.

 
 
The fixed component of the Taxe sur l’Utilisation des Réseaux de Télécommunications (TURTEL) was introduced in 2011. This was a tax on the usage of the telecommunication network applying a charge of XOF250 ($0.40) for each new SIM card. This type of activation charge is relatively rare both internationally and when compared to neighbouring countries; a GSMA/Deloitte survey of 112 countries found that only ten of these countries applied such taxes in 2014.[1]

The TURTEL tax also has a variable component; mobile operators are required to collect payments, at a rate of 3%, on all money they receive from their customers as a result of their access and use of the network. Looking at the fixed component alone, the activation charge is equal to the average daily income of the poorest 20% of the population in 2015.[2]

The TATTIE is a tax of XOF 88 ($0.14) per minute, imposed on international inbound calls. It was introduced in January 2014 at a rate of XOF 25 ($0.04) and has since been increased three times. In 2015, payments for TATTIE made up around 20% of the overall tax and regulatory fee payments by Niger’s operators.

The mobile sector in Niger

As a consequence of such sector specific taxes and regulatory fees levied on top of general taxes, the mobile sector makes a large contribution relative to its economic footprint in Niger. The mobile sector’s contribution to government tax revenue in Niger is 2.6 times its share of GDP. A value greater than 1 indicates that the sector over-contributes to tax revenue, relative to the size of the sector in the economy. That is, despite only accounting for around 5% of GDP, the sector’s tax and regulatory fee payments contributed approximately 12% of total government tax revenue in 2015.[3]

[1] GSMA/Deloitte (2016). “Digital inclusion and mobile sector taxation 2016”
[2] GSMA/Deloitte (2017). “Digital inclusion and mobile sector taxation in Niger”
[3] GSMA/Deloitte (2017). ‘Digital inclusion and mobile sector taxation in Niger’. This figure excludes one-off payments such as payments for spectrum awards.

High sector specific taxation creates affordability barriers for the unconnected, particularly those at the bottom of the income pyramid. The UN Broadband Commission for Sustainable Development suggests a 5% threshold of income for the cost of a 500 MB per month mobile broadband bundle. Based on GSMA analysis, in Niger, this would be at 17% for the average consumer while it would be as high as 38% for the poorest 20%.[4]

The affordability barrier, partly driven by taxation, contributes to the low levels of digital inclusion observed in Niger. While 2 million more Nigeriens have access to mobile services compared to five years ago, unique subscriber penetration remains low compared to other African countries, at 24% in 2016. The vast majority of the 5 million mobile subscribers use 2G services and mobile broadband penetration is among the lowest worldwide, at 1% in 2016.[5]

The economic impacts of tax reform

In a GSMA/Deloitte (2017) report on Niger [6], it was argued that the affordability of mobile ownership can be improved by reducing taxes such as the TURTEL and the TATTIE. Such reductions would have the potential to lower the barrier that consumers face to access mobile services and would improve operator incentives to invest in mobile networks. The report presented estimates of the impacts of tax reform on the sector and the wider economy based on an economic model. Model forecasts were obtained for two alternative scenarios, one where a tax reform takes place and one where nothing changes.

Using the same economic model and government estimates of the tax revenue shortfall expected from the two tax reductions, GSMA estimated the impacts of the tax reform on Niger’s economy from 2017 to 2021 [7]. The tax reform is expected to increase affordability, leading to an increase in market penetration of 2.2% and 100 thousand new mobile internet connections. The resulting increased economic activity is expected to increase GDP by 5%, increase tax revenues for the government by $4.2 million and create 4,300 new jobs. Economy wide investment is also expected to pick up by $140 million over the same period.

[4] GSMA (2017). ‘Taxing mobile connectivity in Sub-Saharan Africa. A review of mobile sector taxation and its impact on digital inclusion.’
[5] GSMA/Deloitte (2017). ‘Digital inclusion and mobile sector taxation in Niger’.
[6] GSMA/Deloitte (2017). ‘Digital inclusion and mobile sector taxation in Niger’.
[7] Niger’s government estimated that the removal of the fixed TURTEL component would create a tax revenue shortfall of XOF 200 million ($341 thousand) and that the reduction of the TATTIE to XOF 25 would create a shortfall of XOF 8 billion ($14 million). As government estimates relate to the second half of the financial year we have annualized the tax shortfalls based on the assumption that would not differ substantially between the two halves of 2017. Impact estimates then assume that the tax change takes place at the beginning of 2017, for illustrative reasons.

Conclusion

The changes announced in the amendment act are a positive step towards addressing the issue of distortionary sector specific taxation. However, Niger still has a long way to go, as 18% of mobile sector revenues go to sector specific taxes. This is a very high proportion, and, as illustrated in the graph below, countries that have higher levels of tax and fee payments as a proportion of sector revenues tend to have relatively low levels of readiness for mobile internet connectivity.  With the large majority of Nigeriens still to benefit from mobile connectivity, further steps need to be taken to tackle the affordability barrier and the distortive effects of sector specific taxation.

Note: * represents 2014 data.
Source: GSMA Intelligence

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