GSMA Report: Future Economic Welfare of Millions Depends on Mobile Sector Taxation Reform in Democratic Republic of the Congo
Mobile Sector-Specific Taxation in DRC is Amongst the Highest in Africa, Holding Back Mobile Adoption and Potential GDP Growth
Kinshasa, Democratic Republic of the Congo: The GSMA today announced the findings of its latest report, ‘Reforming mobile sector taxation in the Democratic Republic of the Congo (DRC): Enabling economic growth through a supportive tax system’. The report, authored by EY, analyses the potential benefits of a more efficient tax structure for the mobile sector in the DRC, with a focus on increasing mobile affordability and unlocking digital inclusion. The report finds that the implementation of tax reforms would benefit the broader economy and the government’s fiscal position, while expanding mobile adoption. It forecasts that a boost in mobile penetration in the DRC would lead to growth in productivity across the economy, increasing GDP, household incomes, employment and investment.
“Reforming mobile sector taxation would unlock vast socio-economic benefits for the Democratic Republic of the Congo, already one of the fastest-growing digital economies in Africa,” said John Giusti, Chief Regulatory Officer, GSMA. “Currently the tax burden on the mobile sector remains amongst the highest in Sub-Saharan Africa, constraining growth in mobile penetration, particularly for low income citizens. Our report highlights the need for mobile sector taxation that achieves a better balance between revenue maximisation, economic growth and social development.”
GSMA research shows that the mobile industry is playing an increasingly important role in driving economic growth and digital inclusion across the DRC. The number of mobile subscribers has grown substantially, from 4.9 million in 2007 to 29.3 million in 2017, at an annual average growth rate of 20 per cent, with unique subscriber penetration increasing from 8.2 to 35.5 per cent over the same period. Importantly, the mobile sector generated $1.1 billion in economic value in 2017. The report concludes that there is still a significant opportunity to increase mobile penetration and grow GDP through policy reform on mobile sector taxation.
Highlights from the Report:
- Taxes on the mobile sector are disproportionately high compared to other African countries. The mobile sector contributes approximately 20 per cent of total tax revenue, despite accounting for just 3.6 per cent of GDP, meaning the total tax contribution of the mobile sector is almost six times the size of the sector in GDP terms.
- Reducing excise duty on mobile services from 10 to three per cent would make mobile services more affordable and would increase service usage. Specifically, the reduction in excise duty would have the following benefits:
- Mobile adoption in the DRC would increase by 2.8 million subcribers by 2023, equivalent to 3.6 million new connections, and mobile data usage would grow by 11.6 per cent. This would increase annual investment of operators by $1.2 million per annum; and
- GDP would increase by $276 million by 2023; and
- Tax receipts would increase by approximately $21 million annually by 2023.
- Reducing the numbering tax from $0.45 per number to $0.225 per number would bring the following benefits:
- Mobile adoption in the DRC would increase by 800.000 subcribers by 2023, equivalent to 1 million new connections, and mobile data usage would grow by 3.2 per cent; and
- Tax receipts would increase by approximately $6 million annually by 2023.
- The recent elimination of the tax on mobile money transactions will improve the affordability of transferring money via mobile phones, benefiting Congolese citizens that have been historically excluded from financial services.
All reforms are expected to be self-financing in terms of their impact on government revenues in the medium term, as the expansion of the sector and wider economy increases government revenues beyond 2020.
Unlocking socio-economic benefits for lower income groups
Through its national development strategy, Plan National Stratégique de Développement 2017–2021 (PNSD), the DRC government has set out ambitious targets for the medium term, including a goal to achieve middle-income status by 2021. The mobile sector can play an important role in achieving these aims by improving access to information, developing skills and enhancing opportunities for trade. In addition, according to the World Bank, increased levels of 3G penetration will provide the DRC’s population with improved access to the internet, as just 6.2 per cent of individuals reported using it in 2016.
To unlock these significant socio-economic benefits, the DRC government needs to take steps to reform mobile sector taxation. By doing so it will help increase access to mobile data and broadband, particularly among lower income rural communities, as more than 70 per cent of new subscribers come from low-income groups in all scenarios.
Giusti added, “Now that a clear national development strategy is in place, the time is right for the DRC to consider a more efficient and inclusive way of taxing mobile services. These essential reforms will allow the DRC to maximise the economic and social benefits of mobile and spur the growth of the digital economy – key to the country’s future.”
About the GSMA
The GSMA represents the interests of mobile operators worldwide, uniting nearly 800 operators with more than 300 companies in the broader mobile ecosystem, including handset and device makers, software companies, equipment providers and internet companies, as well as organisations in adjacent industry sectors. The GSMA also produces industry-leading events such as Mobile World Congress, Mobile World Congress Shanghai, Mobile World Congress Americas and the Mobile 360 Series of conferences.
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