GSMA Mobile Sector Taxation Course

1. Mobile Sector Taxation
GSMA Capacity Building March 2018
Submission: Prepared by: Vusani Ramadzhia

2. Mobile Sector Taxation
 The Mobile Telecoms sector can beneficial and impact on socio-economic
developments and on the other hand create jobs, increase productivity and
ultimately improve the lives of citizens
 Many countries have introduced sector-specific taxes which are levied on both
consumers and mobile operators which includes excise duties levied on mobile
handset, airtime usage and revenue-sharing (Mobile Policy Handbook, 2017)
 These taxes can be a burden to Mobile Operators and thus distort economic
activity. It increases prices and cause ineffeciencies. (Jerry Hausman, 1998)

3. Principles of Effective Taxation
Taxation
should
account for
sector and
product
externalities
Incentives for
competition
and
investment
should be
unaffected
Taxes should
not be
regressive
The Tax and
Regulatory
systems should
be simple,
stable, and
enforceable
Taxation
should be
broad-based

4. Mobile Specific Taxation on Consumers
 Mobile-specific and special taxes contribute to raise the level of the taxes as a
percentage of TCMO in the most heavily taxed countries.
 Consumers are taxed based on their acquisition of goods and services. Taxes on
consumption are important because they can affect the behaviour of users with
regards to purchasing and use of digital goods and telecommunication services.
 Sales Tax The most prominent tax paid by consumers in some countries is sales
taxes. As mentioned above, sales taxes are paid by retailers on the basis of the
price of the good being sold.
 Value-Added Taxes (VAT) and other consumption taxes are also designed to be
indirect taxes because they are collected from the suppliers rather than
consumers. The VAT is the primary form of consumption tax for most countries
around the world.

5. Regulatory Mobile Specific Taxation on
Operators
 Telecommunications operators typically pay corporate taxes on profits, but are
also expected to contribute at several levels.
 Mobile operators are subject to a range of taxes:
 •Corporate income taxes: these may be applied to either profits or revenues.
 •Spectrum and license fees: Mobile operators face a significant cost to acquire
spectrum and gain licenses to operate mobile networks. These fees are often
recurring annually, placing a consistent burden on operator revenues.
 •Operators may also face additional taxes on specific services: examples include
the Surtax on International Incoming Traffic (SIIT)levied in many African
countries, and additional taxes levied on termination or interconnection fees.
 •Operators pay customs duties on imported network equipment necessary for
expanding their network.

6. Regulation Taxes which burden Telecoms
 The following main taxes are paid by the telecoms companies:
– General business taxes:
• VAT: 19.25 per cent of turnover before tax;
• Company Tax: 35 per cent – 38.5 per cent;
• Business Licence tax: 25 per cent – 35 per cent depending on income.
– Sector specific taxes:
• Spectrum fees: Annual flat-fee of XAF 200 million (for a 8MHzs or 42 channels);
• Contribution to special telecom development fund: 3 per cent since Q4 2010,
up from 2 per cent since 1998;
• Regulatory fees: 1.5 per cent of turnover. (ITU)

7. Principles of Taxation Best Practice
 Taxation best practice rests on a number of principles that are
acknowledged internationally to minimise the inefficiencies
associated with taxation and the distortive impacts that taxes
may have on the wider economy. A balanced taxation structure
for mobile could be based on the following principles:
 1. In general, taxation should be broad-based: Taxation alters
incentives for production and consumption, and so economic
distortions will generally be minimised where the burden of
taxation is spread evenly across the economy.
 2. Taxes should account for sector and product externalities:
The case for taxation to address negative externalities (such as
those arising from tobacco consumption) is recognised.

8. Principles of Taxation Best Practices
 3. The tax and regulatory system should be simple, easily understandable
and enforceable: Uncertainty and lack of transparency over taxation systems
and liabilities may deter investors and are also likely to increase enforcement
costs for government.
 4. Dynamic incentives for the operators should be unaffected: Taxation
should not disincentivize efficient investment or competition in the ICT
sector.
 5. Finally, it is widely accepted that taxes should be equitable, and that the
burden of taxation should not fall disproportionately on the lower income
members of society. (GSMA Digital Inclusion Mobile Sector Taxation, 2015)

9. Removal of VAT Mobile Handsets and the
impact on the economy
 The removal of VAT on handset can increase government tax revenue in that
increase affordability and mobile penetration in the country.
 Consumers will gain access to the benefit of mobile ownership and other services
such as mobile money that contributes towards the Government Fiscus.
 Removal of VAT on handset could lead to the GDP growth and increase the level of
internet penetration.
 In low and middle-income countries, the World Bank has found that every 10%
increase in broadband penetration can accelerate economic growth by up to 1.38%
(GSMA Digital Inclusion, 2015)
 Kenya is one of the countries that has experience economic growth due to removal
of VAT in mobile handsets
 South Africa has increased its VAT from 14% to 15% with effective from 1 April 2018
and that could impact on the mobile devices.

10. Tax Reduction on Mobile Devices &
Services

11. Conclusion
 Taxes should not be levied as a way of creating a burden to Telecoms
operators and ultimately discourage investments.
 Governments and Telecoms Regulators should create an enabling environment
and a balanced taxes that benefits both consumers and operators.
 High Tax levies could be a barrier to access to mobile services and as a result
create market inefficiencies and digital divide due to high prices on mobile
handsets and broadband services.
 Taxes should be aligned with international best practices so as to attract
investment and serve as a vehicle for development in the mobile sector

12. References
 ITU Taxing Telecommunication/ICT Services: An Overview, 2013 retrieved fromhttps://www.itu.int/en/ITU-D/Regulatory-
Market/Documents/Taxation%20Study-final-en.pdf
 WCIT Background Brief, 2012 retrieved from https://www.itu.int/en/wcit-12/Documents/WCIT-background-brief9.pdf
 GSR 16 Discussion Paper: The impact of taxation on the digital economy 2016 retrieved from https://www.itu.int/en/ITU-
D/Conferences/GSR/Documents/GSR2015/Discussion_papers_and_Presentations/GSR16_Discussion-
Paper_Taxation_Latest_web.pdf
 IMF Working Paper: Taxing Telecommunications in Developing Countries, 2017 retrieved from
https://www.imf.org/en/Publications/WP/Issues/2017/11/15/Taxing-Telecommunications-in-Developing-Countries-45349
 IMF Working Paper: Tax Policy for Emerging Markets: Developing Countries, 2000 retrieved from
https://www.imf.org/external/pubs/ft/wp/2000/wp0035.pdf
 GSMA Digital Inclusion and Mobile Sector Taxation, 2016 retrieved from https://www.gsma.com/mobilefordevelopment/wp-
content/uploads/2015/06/Digital-Inclusion-Mobile-Sector-Taxation-2015.pdf