Mobile is an important driver of economic growth across all sectors. In Africa, the International Telecommunication Union (ITU) estimates that a 10% increase in mobile broadband penetration would yield a 2.5% increase in GDP per capita. Mobile technologies and services generated 9% of GDP in Sub-Saharan Africa in 2019 – a contribution that amounted to more than $155 billion of economic value added according to the GSMA Sub Saharan Africa Mobile Economy Report 2020.
In addition, the mobile ecosystem also supported almost 3.8 million jobs (directly and indirectly) and made a substantial contribution to the funding of the public sector, with $17 billion raised through taxation. By 2024, mobile’s contribution will reach around $184 billion as countries increasingly benefit from the improvements in productivity and efficiency brought about by the increased take-up of mobile services.
Over the past decade, the mobile market in Tanzania has expanded at a steady pace, with the number of unique subscribers growing from 12 million in 2010 to 25 million in 2020, an increase of about 105%. At the end of 2020, Tanzania had a unique-subscriber penetration of 41% and a unique-subscriber mobile internet penetration of 18%.
The past two years have taught us that access to digital services has been crucial in keeping economies active and mitigating the socioeconomic repercussions of the Covid-19 pandemic. Consequently, governments and policymakers should implement policies to enhance access to connectivity and drive investment in more resilient digital infrastructure for the future.
This is crucial to reactivating the region’s economy post Covid-19 as digital technologies play an even more important role in society. To improve mobile adoption, policy measures should focus on encouraging investment in much-needed infrastructure and improving consumers’ ability to access digital services. As such, policymakers should:
- rethink fiscal policy on mobile connectivity
- facilitate mobile infrastructure deployment
- prioritise digitisation of person-to government transactions
Mobile is the primary channel for accessing the internet for many in Tanzania. It drives sustainable growth, reduces poverty, and improves healthcare and education. Mobile money fuels economic growth by facilitating savings and investment, creating employment and facilitating payments between persons and governments.
Countries with high levels of mobile connectivity have made the most progress in meeting their Sustainable Development Goals (SDGs) commitments. In addition to its direct tax contributions, the mobile sector also contributes indirectly to government revenue. Mobile services enable the digitalisation of person-to-government (P2G) payments through mobile money. Among the benefits it brings, the digitalisation of P2G payments contributes to increasing government revenue through a reduction of administrative costs, a reduction of leakage and an expansion of the revenue collection base.
A conducive regulatory environment is required to accelerate countries’ digital transformation and maximise the benefits of connectivity for businesses, citizens and governments. An important element of this is the tax framework, which has the potential to unlock digital inclusion by striking the right balance between capturing revenues for the government and supporting connectivity adoption and usage.
Recently, there has been a proposal by the Ministry of Finance and Planning in Tanzania to introduce exemption of Value Added Tax on smart phones. This move is in line with international best practice and will promote adoption of mobile broadband services therefore increasing the unique subscriber mobile internet penetration rate in the market ensuring the government inches closer to achieving 80% connection by 2025.
On the other hand, there is also proposal to introduce two other specific levies:
- Airtime levy at a rate between 5TZS and 223TZS depending on airtime recharge amount
- Mobile Money transfer levy at a rate between 10TZS and 10,000TZS depending on amount deposited or withdrawn
The GSMA believes that the introduction of these taxes will negatively impact the progress made so far in accelerating financial and digital inclusion in Tanzania by increasing the cost of mobile services and mobile financial services and this will further slowdown the realization of governments target of reaching 80% connections by 2025.
As at 2019, the mobile broadband usage gap defined as the percentage of the population covered by mobile broadband networks but not using mobile internet stood at 48%. In addition, 34% of the Tanzanian population was not covered by mobile broadband services the coverage gap compared to 25% across Sub-Saharan Africa. (Please note that the usage gap and coverage gap refer to citizens connected to mobile broadband (3G and 4G). This is different than the usual metric of mobile services penetration which refers to citizens connected to mobile services (2G, 3G and 4G)
Based on our recently launched report (Tanzania: Driving social and economic value through mobile-sector tax reform), the penetration of mobile internet (18%) in Tanzania is low compared to Kenya (27%), Uganda (23%) and the Sub-Saharan Africa average of (26%). While the coverage gap (34%) in Tanzania has narrowed in recent years, it is still larger than in Kenya (4%), Uganda (15%) and the Sub-Saharan Africa average of (25%). By providing connectivity, the mobile sector enables life-enhancing benefits such as financial services via mobile money, access to educational resources and access to connected businesses.
Affordability is one of the key barriers to connectivity. The new airtime levy will raise the cost of mobile services that will push affordability barrier even further, making it even more difficult for low-income households to access mobile connectivity. Furthermore, due to the increasing nature of the levy amount vs the airtime amount loaded, the levy will not only negatively impact adoption but also will discourage high top up amount, this will significantly reduce usage of mobile services.
In addition, this airtime tax will apply in addition to the existing 18% VAT and 17% excise duty for mobile services we fear may result in reduction of usage of mobile services leading to significantly reduced mobile services mobile sector revenue and decreased related tax revenues.
The introduction of this tax will negatively impact the efforts currently in place aimed at closing the usage gap. In this regard, a deliberate effort is required from policy makers to provide an enabling environment to encourage adoption of mobile services for citizens and investment in the sector in order to close both the usage and coverage gap. The government of Tanzania should ensure that as many people as possible are connected to mobile broadband services by removing barriers of so that citizens are able to experience the life enhancing benefits of mobile connectivity.
Further, the tax on mobile money threatens to reverse the commendable financial inclusion gains that Tanzania has achieved thus far. So far, there has been an increase in transaction fees from 3% to 940% depending on transaction value across the market. Invariably, the tax will increase the cost of using mobile money services, resulting in consumer cash preference. Any reduction in usage of mobile money would further frustrate the government’s tax collection efforts by reducing the tax base.
Experience in other countries has shown that tax on transactions is regressive. In our publication, the causes and consequences of mobile money taxation: we note that in Uganda, within a month of implementing mobile money transaction taxes in 2018, mobile money transaction values dropped by 24% with person to person (P2P) values dropping by more than 50%, thus causing the government to reconsider the tax. The proposed levy on mobile money transactions and the SIM card levy are not in line with the below established best practice principles of taxation:
- Taxation should be as broad-based as possible: The proposed taxes are specific to the mobile and mobile money users. Furthermore, the tax on mobile money transactions applies only to mobile money providers excluding other e-money issuers and other payment methods.
- Taxation should consider sector and product externalities: mobile sector-specific taxes fail to account for the positive social and economic impacts of mobile technology on other sectors such as agriculture, healthcare and education.
- Taxation should be simple, understandable and enforceable: frequent tax increases result in pricing complexities further complicating understanding of mobile payments to the unbanked.
- Taxation should not discourage investment: taxes on transaction value and an additional sector-specific tax on mobile services create uncertainty and reduce the incentives for investment in robust infrastructure, ultimately decreasing competition within the telecommunication and financial sectors.
- Taxation should avoid regressive impact and should not undermine affordability and access to services: Taxes on mobile money transactions and airtime will raise the barrier for users to connect and use mobile and mobile money services. This will be felt hardest by poorer Tanzanians putting at risk the attainment of wider development goals.
Therefore, based on this, the GSMA recommends removal of the Airtime levy at a rate between 5TZS and 223TZS depending on airtime recharge amount and Mobile Money transfer levy at a rate between 10TZS and 10,000TZS depending on amount deposited or withdrawn. These additional taxes will negatively impact the good progress made so far in accelerating financial and digital inclusion in Tanzania and will further slowdown the realization of governments target of reaching 80% connections by 2025.
In line with this, the GSMA encourages sector-wide dialogue with a view to mitigating the adverse impacts on Tanzanians the proposed taxes are likely to introduce