Mobile taxation in Africa and the Kenyan case study - GSMA · taxation in Africa and the Kenyan case study ... Tax reductions and healthy competition have also ... Deloitte LLP is

© 2012 Deloitte LLP Private and confidential

Mobile taxation in Africa and the Kenyan case study

February 2012Davide Strusani, Deloitte LLP


Mobile telephony is often subject to discriminatory taxation in developing countries compared to other services

• The GSMA has recently commissioned Deloitte to undertake a global study on consumer taxation on mobile services in 111 countries worldwide

• We present and discuss here the results of the study in relation to Africa

• We also discuss the findings of a study that measures the relationship between mobile telephony and economic growth

• Finally, we show the positive impact of reductions in mobile telephony taxation in Kenya

2


In our study, tax is measured as a proportion of mo bile service costs

• Mobile service costs are expressed as Total Cost of Mobile Ownership (TCMO) and the Total Cost of Mobile Usage (TCMU)

3

TCMO

Handset Connection Rental Calls SMS

Handset Cost Tax Connection Cost

Tax Rental Cost Tax Call Usage Price

Tax SMS Usage Price

Tax

VAT( $)

Customs Duty

VAT( $) VAT( $) VAT( $)

Telecoms Specific Tax





VAT( $)

Total TaxesVAT ($), Customs Duty, Telecoms Specific Tax

Total Taxes as a proportion of service costs

Service cost without tax


Gabon, DRC and Madagascar have the highest tax as p roportion of TCMO in Africa

4

37.20%

29.14%

28.33%

28.17%

27.80%

26.23%

24.47%

23.82%

23.29%

22.01%

21.21%

20.53%

20.37%

20.18%

18.90%

18.74%

18.59%

18.41%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Gabon

Dem Rep. Congo

Madagascar

Uganda

Tanzania

Zambia

Rwanda

Sierra Leone

Niger

Ghana

Senegal

Kenya

Cameroon

Congo B

Cote d'Ivoire

Guinea

Chad

Global Average

Source: Deloitte/GSMA, Global Mobile Tax Review

Tax as a proportion of TCMO


Taxes on mobile usage, or ‘airtime taxes’, have als o increased significantly in the last four years in Africa

5

18%

12%

10%

10%

10%

10%

10%

7%

6%

5%

5%

3%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Gabon

Uganda

Dem Rep. Congo

Kenya

Sierra Leone

Tanzania

Zambia

Madagascar

Ghana

Rwanda

Senegal

Niger

18%

12%

10%

10%

10%

10%

10%

7%

6%

5%

5%

3%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Gabon

Uganda

Dem Rep. Congo

Kenya

Sierra Leone

Tanzania

Zambia

Madagascar

Ghana

Rwanda

Senegal

Niger



Tax as a share of handset costs represents over two thirds of the costs of a handset in Gabon and Niger

6

80%66%

49%49%

48%48%

46%45%

39%38%

35%31%

30%29%

28%27%27%

25%23%

0% 10% 20% 30% 40% 50% 60% 70% 80%

GabonNiger

CameroonCongo BRwandaGuinea

MadagascarDem Rep. Congo

Cote d'IvoireChad

GhanaZambia

Gambia TheRegional Average

TanzaniaEthiopiaMalawi

MozambiqueGlobal Average


Tax as a proportion of handset costs


20 African countries still impose custom duties on handsets

7

47%30%30%30%30%30%

27%25%

21%20%20%

12%10%10%10%10%

9%8%

5%2%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

NigerCameroon

Congo BGabonGuinea

RwandaDem Rep. Congo

MadagascarCote d'IvoireGambia The

GhanaEthiopia

ChadMalawi

TanzaniaZambiaLesotho

MozambiqueNigeriaKenya


Custom duties


18%17%

31%

19% 19%

29%

0%

5%

10%

15%

20%

25%

30%

Tax/TCMO Tax/TCMU Tax/Handsets

2007

2011

As a result, taxation as a proportion of mobile cos ts has increased in the last four years in Africa...

8

18%17%

31%

19% 19%

29%

0%

5%

10%

15%

20%

25%

30%


2007

2011

18%17%

31%

19% 19%

29%

0%

5%

10%

15%

20%

25%

30%


2007

2011



19.32%

17.17%

14.65%

12.78%

19.06%

16.91%

13.94%

12.77%

29%

27%

21%

17%

0% 5% 10% 15% 20% 25% 30%

Africa

Latin America

ME & Maghreb

Asia Pacific

Tax as a proportion of TCMOTax as a proportion of TCMUTax as a proportion of handset price

19.32%

17.17%

14.65%

12.78%

19.06%

16.91%

13.94%

12.77%

29%

27%

21%

17%

0% 5% 10% 15% 20% 25% 30%

Africa

Latin America

ME & Maghreb

Asia Pacific


19.32%

17.17%

14.65%

12.78%

19.06%

16.91%

13.94%

12.77%

29%

27%

21%

17%

0% 5% 10% 15% 20% 25% 30%

Africa

Latin America

ME & Maghreb

Asia Pacific


9

60%

100%

95%

75%

Pen.

... and mobile taxation as a proportion of mobile c osts in Africa is higher than in other developing regions



Mobile taxes and unbalanced taxes on handsets const rain mobile penetration and economic activity

10 Source: Deloitte/GSMA, Global Mobile Tax Review

Reducing the imbalance on handset taxation

Increase in handset circulation and mobile penetration

Positive effect on GDP growth

Positive effect on government taxation receipts


A 10% increase in mobile penetration leads to signi ficant increases in growth of GDP per capita

11

3.88

3.81

3.70

3.51

3.29

3.16

2.66

2.49

2.43

2.08

1.92

1.76

1.75

1.66

1.44

1.34

1.25

1.24

1.22

0 0.5 1 1.5 2 2.5 3 3.5 4

Sierra Leone

Zimbabwe

Liberia

Madagascar

Mozambique

Mali

Sudan

Guinea-Bissau

Zambia

Lesotho

Cameroon

Nigeria

Benin

Kenya

Ghana

Swaziland

Congo, Rep.

Cote d'Ivoire

Namibia

Source: Deloitte analysis, forthcoming

%


Kenya has successfully reduced mobile specific taxa tion

12

• The Kenyan government recognised that handset price represented a barrier to the development of the sector

• In August 2009, the 16% VAT on mobile phone handsets was removed

2011



Lowering taxation has significantly increased hands et circulation...

13

0

50,000

100,000

150,000

200,000

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya


... and has contributed to increased mobile penetra tion above African average

14

40%

45%

50%

55%

60%

65%

70%

Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010Q3 2010Q4 2010Q1 2011Q2 2011

Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya


0.003

0.013

0.023

0.033

0.043

0.053

0.063

0.073

0.083

0.093

0.103

0

1

2

3

4

5

6

7

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

Min

s,

bn

Tax reductions and healthy competition have also lo wered mobile prices and increased usage

15 Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya


In Kenya, consumers, businesses and government have benefitted from developments in the mobile sector

16 Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2008 2009 2010 2011

KH

S, m

Intangible benefits

Productivity increases

Supply side


Reducing taxation contributes to increase service p enetration and benefits economic activity

• In Africa, the contribution of mobile communications is particularly important to countries’ economic and social development, especially as a result of the limited fixed telecommunications infrastructure

• The Kenyan government has recognised the importance of removing taxes on access to mobile services

• The reduction in handset costs has led to substantial increases in handset circulation and mobile penetration

• This has resulted in notable benefits to consumers and to the economy

• Other African countries could consider the benefits that removing handset tax has provided for Kenya, and the positive benefits that increases in mobile penetration have on GDP growth rates

17


• http://www.gsma.com/tax-research-and-resources/

18

Any questions?

Davide StrusaniAssistant Director, TMT Economic [email protected]


Member of

Deloitte Touche Tohmatsu

19

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Mobile taxation in Africa and the Kenyan case study - GSMA · taxation in Africa and the Kenyan case study ... Tax reductions and healthy competition have also ... Deloitte LLP is