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TAXING TIMES

Across Africa, citizens are resisting attempts to raise tax revenue from rising mobile use

REUTERS/Noor Khamis
Mobile growth is still growing fast in Africa and governments want a bigger cut

Earlier this week (Oct. 19) in Cameroon, president Paul Biya ordered the deferment of the collection, by digital means, of custom duties and taxes on imported phones and other electronic devices. A new automated system for the collection had been scheduled to go operational on Oct. 15.

But the move sparked widespread outrage, especially online with the hashtag #EndPhoneTax, in a country where manifestation of dissent can easily spiral into violence. The pressure was enough to push the government to halt the tax collection system which would have undoubtedly shifted the burden of payment from the importer to the end user.

It is important to note the customs duties and taxes on phones, which stand at 33% of their factory price, as well as a 200 CFA francs (36 cents) tax on app download, have not been scrapped. The levies have merely been suspended over the lack of an appropriate collection mechanism. The Biya government remains keen on recapturing this tax revenue.  It says the government has been missing out on about $21.5 million annually to irregular customs clearance and phone smuggling.

It is not only in Cameroon where citizens have been pushing back at attempts to raise tax revecnue through one of the few successful and growing industry sectors on the continent. In Liberia, customers and mobile network operators have been furious at additional surcharges on voice calls and internet usage imposed by the local regulator which in some cases could double the bills of for ordinary users.

Like Cameroon, Liberia also targeted mobile phone users to raise more tax revenue. Both countries have had to shelve their plans, for now.

While rights campaigners saw the move as an attack on digital rights, network service providers operating in the country, notably Orange Liberia and Lonestar Cell MTN, considered the surcharge imposed by LTA as potentially damaging to business. The telcos have since engaged in legal scuffles with the telecoms regulator.

Following stiff opposition to the surcharge on telecommunications consumers, the regulator announced on Oct. 15 it was suspending the implementation for surcharges on the intervention of president George Weah.

Still in West Africa, two years ago, a government attempt to impose a social media tax in Benin was met with mass protests. Following days of demonstrations across the country, the government was compelled to repeal the tax even before it went into effect.

In other countries where citizens have yet to be successful in pushing back social media tax and other taxes related to telecommunications, they have been finding a way to circumvent it. In Uganda, it is reported that citizens are by-passing a controversial social media tax which was instituted two years ago.

According to recent statistics from the Uganda Communications Commission Market Performance Report for the quarter ended June, no fewer than 7.6 million out of 18.9 million mobile internet subscribers in the country do not pay the social media tax. It is suspected the tax evaders make use of virtual private networks which overlaps the system.

The mobile phone industry accounted for  9% of sub-Saharan Africa’s collective GDP in 2019 or $155 billion in absolute terms.

In the last five years, African governments have been eyeing the telecoms sector to ramp up tax revenue collection, either from consumers, corporates, or both. This is understandably so as telecommunications remains one of the few successful sectors on the continent and its outlook looks quite promising. Data from the global mobile industry body, GSMA, shows the industry accounted for  9% of sub-Saharan Africa’s collective GDP in 2019 or $155 billion in absolute terms. The sector’s contribution in taxation to government revenue in the sub-region topped $17 billion.

As mobile phone and internet penetration rates continue to increase, expecting to reach 50% and 39% respectively by 2025, the telecoms’ sector contribution will top almost $185 billion by 2024, says GSMA.

Despite the economic challenges posed by Covid-19, the mobile sector has been resilient, especially at the onset of national lockdowns which pushed many people to work form home and carry out financial transactions through the digital economy. In most African countries, the sole way most people access the internet is via their mobile phones.

At the same time, World Bank, IMF, and other bodies have long encouraged African governments to focus on increasing digital government services and thereby having the opportunity to broaden their tax bases also and raised the prospects of digital taxes. “The insertion of digital tools into public administration may help expand the set of taxpayers, reduce costs, and improve tax performance,” wrote World Bank in its biannual Africa’s Pulse report earlier this month. “Digital technologies help strengthen tax administration by lowering transaction costs and allowing innovation in tax policy,” the report states in part, noting that digital tax administration may reduce tax evasion and fraud.

Expanding taxation in the telecoms sector could be a suitable way of mobilizing resources for post-Covid recovery on the continent, considering that growth is estimated to shrink between -2.1 and -5.1% in 2020 from a modest 2.4% in 2019. But moves by African governments in this light have been received with great suspicion—with many considering such moves by leaders as compromising the digital space to secure their stay in power.

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