Taxing Mobile Connectivity in Sub Saharan Africa 2017

Taxing mobile connectivity
in Sub-Saharan Africa
A review of mobile sector taxation
and its impact on digital inclusion
Copyright © 2017 GSM Association

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Authors
Mike Rogers, Senior Analyst
Xavier Pedros, Economist
Contents
Executive summary 2
1 The mobile industry in Sub-Saharan Africa 5

1.1 Access to mobile is a key enabler of digital inclusion 5
1.2 The mobile industry makes a significant economic
contribution6
1.3 How Sub-Saharan Africa can reach its full mobile potential 7
2 Taxation on the mobile industry in Sub-Saharan Africa 9

2.1 Overview of mobile taxes in the region 9
2.2 Sector-specific taxes are not aligned with best-practice
principles of taxation 10
2.3 Consumer taxes and fees 14
2.4 Mobile operator taxes and fees 17
3 Mobile sector taxation and its impact on affordability 22

and investment
3.1 Sector-specific taxation raises affordability barrier
and risks undermining digital inclusion efforts 22
3.2 Uncertain and complex taxation regimes affect
operators’ ability to invest in infrastructure rollout 28
4 Reforming taxation to enable connectivity and 33

deliver growth
4.1 Significant economic benefits from reducing
sector-specific taxation and fees 33
4.2 Areas for reform to support mobile sector and
region’s economic growth 36
Methodology38
TAXING MOBILE CONNECTIVITY IN SUB-SAHARAN AFRICA
Executive summary
In Sub-Saharan Africa, more than 420 million people (43% of the
population) subscribed to a mobile service at the end of 2016. The mobile
ecosystem also contributed an estimated 7.7% to the region’s GDP and
supported 3.5 million jobs in 2016. By helping to promote digital inclusion
and support the delivery of essential services and key development
objectives, mobile connectivity is a critical enabler of economic and social
development. However, most countries in Sub-Saharan Africa face a
significant digital divide: more than 700 million people in the region did
not subscribe to mobile internet services in 2016, and affordability and
coverage remain significant barriers to access in the region.
Taxation levied on mobile, especially over and above standard rates,

exacerbates affordability and coverage barriers for the underserved
The positive contribution of the mobile sector to This results in mobile operators’ contribution to
the economy is well recognised. However, the tax government tax revenues outweighing their size
treatment of the sector is not always aligned with in the economy. For example, in the DRC, sector
best-practice principles of taxation; this may have a revenues accounted for 3% of GDP in 2015 while
distortive impact on the industry’s development. In mobile tax payments represented more than 17% of
2015 the mobile sector paid on average 35% of its total government tax revenues. Countries that have a
revenues in the form of taxes, regulatory fees and higher level of taxes and fees as a proportion of sector
other charges in the 12 Sub-Saharan African countries revenues tend to have relatively low levels of readiness
for which data is available. Sector-specific taxes and for mobile internet connectivity, as measured by the
fees are often the driver for the high tax burden: GSMA Mobile Connectivity Index.
around 26% of the taxes and fees paid by the mobile
industry related to sector-specific taxation rather than
broad-based taxation.
Many cannot afford to access mobile services, especially those at the

bottom of the income pyramid
For the 27 countries in the region where data is share of income is 25% for those in the bottom 40%
available, the total cost of mobile ownership (TCMO) income group, reaching as high as 68% in the DRC.
for purchasing a handset and 500 MB of data per Taxation represents 22% of the TCMO, while sector-
month represents on average 10% of monthly income, specific taxes represent 5% of the TCMO on average.
well above the 5% threshold recommended by the UN In certain countries the level of taxation on mobile
Broadband Commission. Moreover, high prices have ownership represents more than 5% of monthly
the most adverse impact on those on lower incomes, income, making the service unaffordable – without
who are to benefit the most from access to mobile even considering the price of the device and service.
technologies. The cost of an equivalent basket as a
2
Tax deteriorates the business environment and reduces operators’

ability to invest in network and coverage
The mobile industry is characterised by significant increases the complexity and operational burden in
upfront investment in spectrum licences, equipment the taxes and fees system. This risks harming mobile
purchases, network rollout and points of sale. In sector development and undermining the necessary
Sub-Saharan Africa, which has a predominantly investment needed to sustain infrastructure rollout in
rural population, the costs involved in extending and the region. For example, in Senegal, mobile subscriber
upgrading mobile networks are substantial. Mobile penetration growth slowed in 2011 when the RUTEL
operators in the region have invested $37 billion in tax on telecoms services was increased from 2% to 5%,
their networks over the past five years. However, and growth fell later in 2011 when CODETE, a tax on
a combination of frequent tax changes and the operator turnover, increased from 3% to 5%.
high number of taxes levied on mobile operators
Rebalancing sector-specific taxes and regulatory fees can promote

connectivity, economic growth, investment and fiscal stability
Governments across the world have recognised the importance of policies that support the ICT sector, resulting
in digital agendas that set ambitious connectivity objectives, often relying on mobile networks to fulfil them.
A number of principles for reforming sector-specific taxation and fees should be considered by governments
in Sub-Saharan Africa, in order to align mobile taxation with that applied to other sectors and with the best
practices recommended by international organisations such as the World Bank and the IMF.
Reduce sector-specific taxes and fees Remove consumer taxes that target access
to mobile services
Phased reductions of sector-specific taxes and
fees can be an effective way for governments to Luxury taxes on handsets, SIM cards and other
signal their support for the connectivity agenda. activation/connection charges create a direct
By expanding the user base and use of services, barrier for consumers to connect and access mobile
reductions in taxes and fees could be achieved broadband, especially in developing markets.
while maintaining tax neutrality and potentially Removing such taxes can increase the taxable
having a positive impact on government revenues base for the government by reducing affordability
in the medium to long term. barriers and enabling more users to gain access to
the mobile market.
Reduce complexity and uncertainty of

taxes and fees on the mobile sector Support effective pricing of spectrum
to facilitate better quality and more
Uncertainty over future taxation reduces affordable services
investment; the risk of future tax rises is priced into
investment decisions and can reduce investment in By adopting a long-term perspective, setting
the medium term. Numerous sector-specific fees modest reserve prices and prioritising spectrum
raise compliance costs for mobile operators. allocation, governments and regulators can support
operators in offering high-quality and affordable
mobile services to consumers. The spectrum award
approach should balance the relationship between
ex-ante and ex-post fees in a transparent and
equitable way.
3
Reduce or remove import duties Remove taxes on international incoming calls
By applying targeted or temporary tax reductions Surtaxes on international incoming calls are
or eliminating import duties for mobile network particularly detrimental to businesses and
equipment or other local taxes levied directly consumers in Sub-Saharan Africa. Removing these
on mobile sites, an immediate cost relief can be taxes can ease barriers to regional and international
delivered to operators and can increase network trade by lowering the cost of receiving international
investment. Removing or temporarily exempting calls and can improve affordability, enabling more
import excises and duties on mobile handsets and consumers to realise the benefits of mobile services.
smartphones reduces the affordability barrier for
the poorest consumers and extends connectivity.
Avoid excessive regulatory fees and taxes
on revenues
Implement supportive taxation for
emerging services such as mobile money Regulatory fees that exceed the true cost of spectrum
and licence management should be reconsidered.
The growth of new services such as mobile In particular, fees on revenues rather than profits
data, mobile money and Internet of Things (IoT) can discourage investment and innovation, as these
applications can help accelerate productivity fees require the same payment from an operator
and financial inclusion throughout the economy. regardless of whether it retains its profit or uses it to
Disproportionate taxation of services such as invest in new infrastructure and services.
mobile money puts a wide range of positive
externalities at risk.
4
1 The mobile
industry in Sub-
Saharan Africa
1.1 Access to mobile is a key enabler
of digital inclusion
Mobile access is having a profound impact on our Africa where fixed line penetration is low. By 2020,
society, redefining the way individuals, societies and 60% of the world’s population, or 4.7 billion people,
businesses function and interact. With 5 billion unique will be mobile internet users. 2 Sub-Saharan Africa will
subscribers worldwide,1 mobile is the most widespread reach almost 40% mobile internet penetration, an
form of personal technology and in many developing uplift from 26% penetration as of the end of 2016, with
markets has become the dominant platform for access mobile internet unique subscribers forecast to grow at
to the internet. This is particularly true in Sub-Saharan a 13% CAGR to 411 million.
Figure 1
Mobile internet unique subscriber penetration
8% 9%
16% 14% 13%
11%
66% 65%
52% 12%
51% 51%
36%
26%
Northern America Europe CIS Latin America Asia Pacific Middle East Sub-Saharan
and North Africa Africa
Forecast percentage point
2016 increase 2016–2020
Source: GSMA Intelligence
1 Source for unique subscriber metrics: GSMA Intelligence

2 Total unique users who have used internet services on their mobile device(s) at the end of the period. Mobile internet services are defined as any activity that consumes mobile
data (i.e. excluding SMS, MMS and cellular voice calls).
5
Mobile connectivity brings a wide range of social mobile sector has become central to the international
and economic benefits by helping to promote digital development agenda and will prove a key enabler
inclusion and supporting the delivery of essential to achieve the UN’s Sustainable Development Goals
services and key development objectives such as (SDGs), an ambitious 17-point plan introduced in
poverty eradication, healthcare, education, financial September 2015 to end poverty, combat climate
services and gender equality. For these reasons, the change and fight injustice and inequality by 2030.
1.2 The mobile industry makes a significant

economic contribution
It is well recognised by academic literature and The mobile ecosystem makes a significant economic
policymakers alike that internet connectivity and mobile contribution in Sub-Saharan Africa, with an economic
access contribute to long-term economic growth. value of $110 billion equivalent to 7.7% of GDP. This
For example, the World Bank (2009)3 and Czernich overall impact includes the direct impact of the mobile
et al (2011)4 found that a 10% increase in broadband ecosystem ($37 billion), the indirect impact ($10.5
penetration increases GDP per capita growth between billion) and the increase in productivity brought about
1 and 1.5 percentage points in low-/middle-income by the use of mobile technologies ($62 billion).6
countries. One key channel through which mobile
connectivity delivers growth is enhanced productivity; The mobile ecosystem also supported approximately
the GSMA et al (2012)5 found that a 10% increase 3.5 million jobs in 2016. This includes workers directly
in mobile penetration increased productivity by 4 employed in the ecosystem and jobs that are indirectly
percentage points in developing markets. supported by the economic activity generated by the
mobile sector. In addition to the mobile sector’s impact
on the economy and labour market, it makes a substantial
contribution to the funding of the public sector, with
$13 billion raised in 2016 in the form of taxation.7
Figure 2
Total (direct, indirect and productivity) contribution to GDP (2016 $ billion, % GDP)
62 110
4.3%
11
7.7%
37 0.7%
2.6%
Direct impact Indirect Productivity Total
3 “Economic impacts of Broadband” in Information and Communications for Development: Extending reach and increasing Impact, World Bank Publications, 2009
4 “Broadband Infrastructure and Economic Growth” in The Economic Journal, Royal Economic Society, 2011
5 What is the impact of mobile telephony on economic growth? GSMA, Deloitte and Cisco, 2012
6 The direct economic contribution represents the value added to the economy, including employee compensation, business operating surplus and taxes. The indirect impact of
the ecosystem is the economic activity generated via the purchase inputs from providers in the supply chain. Lastly, the productivity impact is the efficiency gains generated by
mobile technologies, which spill over throughout the economy.
7 This includes general taxation (VAT, corporation tax, income tax and social security contributions) and sector-specific consumer taxes, but it excludes sector-specific taxes on
operators (e.g. regulatory fees)
6
1.3 ow Sub-Saharan Africa can reach its full

H
mobile potential
Despite the considerable increase in the uptake of mobile services in the last decade, most countries in Sub-
Saharan Africa face a significant digital divide, especially in the adoption of mobile telephony and mobile
internet services across low-income populations in rural and remote areas. At the end of 2016, 420 million people
subscribed to mobile services in Sub-Saharan Africa, representing 43% of the population, with penetration rates
ranging from less than 10% in Eritrea to 69% in Botswana.
The mobile internet gap remains significant: Two thirds of the population of Sub-Saharan Africa
approximately 714 million people in Sub-Saharan live in rural areas and coverage remains a significant
Africa did not subscribe to mobile internet services barrier to access. As of the fourth quarter of 2016,
in 2016. Although an additional 155 million people 3G and 4G networks covered 51% and 29% of the
are forecast to subscribe to mobile internet services population across the region8 respectively, around
by 2020, some 665 million people in the region will 32–38 percentage points below the global average for
remain without access to the mobile internet, factoring both technologies.
in population growth.
Figure 3
Unique subscriber and mobile internet unique subscriber penetration

in select countries in Sub-Saharan Africa
70%
60%
56%
50%
46%
43%
40%
36%
33%
30% 31% 29%
25% 26% 26%
24% 24% 23%
20% 21%
19%
17% 16% 16%
10% 9% 10% 10%
0%
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Mobile internet unique Unique subscriber

subscriber penetration penetration
8 Source: GSMA Intelligence
7
Network coverage alone does not guarantee network rollout to the extent that they are affected
access: with 3G and 4G penetration at 23% and 2% by taxation, and in particular by those taxes that are
respectively,9 approximately 271 million people are sector-specific (applied only to the mobile sector or at
within the footprint of a 3G network but remain higher rates for the mobile sector).
unconnected and, similarly, 260 million people for 4G.
Taxation and fees on mobile services affect
Affordability represents a significant barrier to the affordability by directly raising the retail price that
uptake of mobile services in the region, with the total consumers face, while also affecting operators’
cost of mobile ownership (TCMO) determined by the incentives to invest in new technologies, better
cost of service usage (voice, data, SMS), activation and network quality of service and coverage and greater
mobile handset. Countries in Sub-Saharan Africa have rollout into rural areas.
among the highest TCMO as a proportion of income
worldwide, and this is particularly pronounced for As this report shows, in Sub-Saharan Africa the mobile
those at the bottom of the income pyramid. industry is often subject to taxation above and beyond
that which is applied to other sectors. This can further
To harness the full potential of mobile and embrace distort consumption and investment decisions in
the benefits of the digital economy, it is crucial mobile services and technologies. A more balanced
that policymakers, the mobile industry and the and equitable tax structure could unlock greater digital
development community in Sub-Saharan Africa work inclusion and growth of the mobile sector. Through
together to address the barriers to greater digital the positive social and economic impacts of mobile,
inclusion. While recognising there are other significant including on productivity, it could also result in wider
barriers such as digital literacy and availability of economic benefits throughout the economy and
locally relevant content, this report focuses on ultimately, by increasing the tax base, also result in
affordability of mobile services and on investment in greater tax revenues for governments.
8
2 axation on the
T
mobile industry
in Sub-Saharan
Africa
2.1 Overview of mobile taxes in the region
Mobile consumers and operators in Sub-Saharan to improve social and economic standards, mobile
Africa are subject to general taxes, such as value services and devices have often been treated as luxury
added tax (VAT) and corporation tax, but also face a goods and therefore attracted a higher rate of tax than
number of sector-specific taxes and regulatory fees other standard goods and services.
that either apply exclusively to the mobile industry or
are applied at higher rates than other sectors. In Sub- Examples of the taxes and fees the mobile industry are
Saharan Africa and other developing markets, despite subject to are summarised in Table 1.
being widely accepted as essential and basic tools
Table 1
Mobile consumer and operator taxes and fees
TAXES ON CONSUMERS OPERATOR TAXES AND FEES
Tax base Tax type Tax base Tax type
Sales tax Profits Corporation tax
Sector-specific taxes Turnover tax

Handsets General
Revenues
and other devices taxes
Other revenue taxes
Customs duty
Network equipment Customs duty
Sales tax One-off licence fee

Activation Fixed amounts
Sector-specific taxes Regulatory One-off spectrum fee
fees and
Services Sales tax Universal service obligation
other
Usage payments Revenues Variable licence fee
Sector-specific taxes
Variable spectrum fee
Sector-specific
Source: GSMA Intelligence, Deloitte/GSMA 2015: Digital inclusion and mobile sector taxation 2015
9
Consumer taxes such as sales taxes, custom duties operators in the form of lower profits (thus negatively
and activation taxes directly raise retail prices for impacting investment), while others may be passed
consumers. Meanwhile, the extent to which mobile through in terms of higher prices for consumers, which
operator taxes and fees ultimately fall on the operator impacts affordability. Or there may be a combination
or consumer depends on the type of tax and market of the two.
conditions. Some taxes and fees may be absorbed by
2.2 Sector-specific taxes are not aligned with

best-practice principles of taxation
A number of established principles are recognised Taxation over and above that which is applied to
by international organisations such as the IMF, World other standard goods and services is not fully aligned
Bank and OECD as contributing to an effective tax with the best-practice principles of taxation. As such,
system. These principles aim to minimise the potential there is a risk with sector-specific taxation of causing
inefficiencies and distortive impacts caused by negative distortionary impacts on economic and social
taxation and take into account important practical development.
challenges such as the level of informal activity and
limited institutional capabilities.
Table 2
Best-practice principles of taxation

Principle Description
Taxation should be broad-based Taxation alters incentives for production and consumption, so
economic distortions will generally be minimised where taxation
is spread evenly across the economy. In practice, this equates to
adopting broadly defined bases for taxation, rate variations that
are limited and effective enforcement of tax compliance.
Taxes should account for sector The case for taxation to address negative externalities such as
and product externalities those arising from tobacco consumption is well recognised.
However, the same logic also applies in the case of sectors
and products with positive externalities. Taxation policy should
encourage sectors, such as mobile, that create positive externalities
in the wider economy.
Taxation should not Taxes and fees can be regressive – that is, have disproportionately
disproportionately fall on those greater impact on the poorest households raising the price of
with lower income mobile services across the population without regard for capacity
to pay. Certain sector-specific taxes and fees, such as activation
and connection fees, are often imposed as a flat fee. These can
have a particularly regressive impact on the poorest households.
The tax and regulatory system A lack of transparency over taxation systems and liabilities may
should be simple, easily deter investors and is also likely to increase enforcement costs
understandable and enforceable for government.
Different taxes have different There is a general consensus that, for most products, a
economic properties broad‑based consumption tax will be less distorting than
taxation on income or profits.
Source: M
obile Taxes and Fees – A Toolkit of Principles and Evidence, Deloitte/GSMA 2014; Digital Inclusion and Mobile Sector Taxation 2016, Deloitte/
GSMA, 2016
10
In 12 Sub-Saharan African countries10 for which data tax burden: approximately 26% of the taxes and fees
is available, the mobile sector paid an estimated paid by the mobile industry related to sector-specific
$4.4 billion in taxes and fees in 2015, representing taxation and not from broad-based taxation, equating
on average 35% of mobile sector revenues. Sector- to $1.15 billion.
specific taxes and fees are often the driver for the high
Figure 4
Total tax and fee payments as a proportion of mobile sector revenues

in 2015 with Mobile Connectivity Index Scores in select countries in
Sub-Saharan Africa
70% 70
Tax and fee payments as a % of sector revenues
Mobile Connectivity Index score

60% 60 60
50% 50
49
29%
40% 16% 40
18% 38
26% 18%
37 5% 34 35 36
30% 30
32
6% 5%
20% 25% 14% 1%
20 20 20
18 17 10% 10%
32% 30% 23% 25% 22% 24%
10% 21% 19% 10
16% 12% 11%
0% 0
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Sector-specific Mobile Connectivity

General taxation taxation Index score
*=2014
Countries that have a higher level of tax and fee payments as a proportion of sector revenues tend to have
relatively low levels of readiness for mobile internet connectivity. This is illustrated through comparison with the
GSMA Mobile Connectivity Index, which benchmarks 134 countries against four key enablers that are critical to
creating the right conditions for mobile internet connectivity to flourish:
• infrastructure: the availability of high-performance • consumer readiness: citizens with the awareness
mobile internet network coverage and skills needed to value and use the internet
and a cultural environment that promotes gender
• affordability: the availability of mobile services
equality
and devices at price points that reflect the level of
income across a national population • content: the availability of online content and
services that are accessible and relevant to the
local population.
10 Cameroon, Chad, DRC, Ghana, Guinea, Madagascar, Niger, Rwanda, Senegal, Sierra Leone, South Africa and Tanzania. Note that payments data for Madagascar is from 2014
rather than 2015 and that the 2014 data does not include tax payments related to spectrum fees. See Appendix for details of data sources and methodology.
11
Several countries in Sub-Saharan Africa lag Countries in Sub-Saharan Africa that have higher levels
behind other developing markets when it comes of sector-specific taxes and fees tend to have a higher
to infrastructure and affordability enablers for total tax burden (Figure 5). Sector-specific taxation
connectivity; however, those with a lower taxation can be so high that the contribution required of the
burden seem to perform better in supporting mobile mobile sector for sector-specific taxes and fees is
connectivity and development. greater than that of general taxation. For example, in
the DRC, the mobile industry contributed $352 million
in sector-specific tax and fees against $277 million in
general taxation in 2015.
Figure 5
Revenue share of sector-specific versus total tax and fees in 2015
70%
Total tax and fee payments as a % of sector revenues
60% Guinea
Chad
50%
DRC
Tanzania
40%
Niger
Madagascar*
30% Ghana
Sierra Cameroon
Leone
Senegal
20% Rwanda
South
Africa
10%
0%
0% 5% 10% 15% 20% 25% 30% 35%
Sector-specific tax and fee payments as a % of sector revenues
*=2014
In part as a result of sector-specific taxation, the developing) countries outside Sub-Saharan Africa;11
mobile industry in Sub-Saharan Africa often makes we would expect this ratio to be closer to parity in
a larger contribution to government tax revenues developed countries. In the region, this multiple was
relative to its size in the economy. Within the sample of highest in the DRC, at 4.8×, where the total taxes and
countries for which data is available, the contribution fees paid by the mobile sector amounted to almost
of the mobile sector to government tax revenue is $630 million in 2015. Furthermore, in eight of the
estimated to be 2.7× the industry’s revenue share of countries, mobile sector tax and fee payments as a
GDP on average (Figure 6). This compares to a ratio of share of government tax revenues were at least double
1.8× based on available tax payment data for 15 (mainly the sector’s revenue share of GDP.
11 Argentina, Bangladesh, Brazil, Colombia, Ecuador, El Salvador, Hungary, Italy, Jamaica, Jordan, Mexico, Nepal, Pakistan, Sri Lanka and Thailand
12
Figure 6
Mobile sector tax and fee payments in government tax revenue

versus the share of mobile sector revenues in nominal GDP in 2015
25% 5
Ratio
Share
20% 4
15% 3
10% 2
5% 1
0% 0
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Mobile sector tax and fee payments as Mobile sector revenues Tax contribution/
a proportion of government tax revenue as a proportion of nominal GDP GDP contribution ratio
*=2014
Countries across the region have different approaches to the type of taxation applied. There is significant
variability among the sector-specific taxes and fees that are levied:
• In more developed mobile markets such as South • At 32% both Tanzania and Rwanda generate the
Africa, the majority of the tax base is derived from highest sector-specific taxes and fees on voice,
general taxes such as VAT and corporation tax. SMS and data usage as a proportion of total
payments. In Guinea, taxes and fees paid by mobile
• Cameroon and Sierra Leone generate more than
operators represented more than three quarters
half of tax payments through VAT at 56% and
(77%) of total payments. Operators in Chad face a
54% respectively, followed by Senegal (49%) and
similarly high tax burden, contributing 67% of total
Madagascar (48%).
payments.
• Sector-specific taxes and fees on voice, SMS and
data usage accounted for 11% of the total payments
of the countries included in this analysis, and at 42%
represent the largest share of sector-specific tax
and fee payments (which also include regulatory
and spectrum fees).
13
Figure 7
Tax and fee payments breakdown in 2015 in select countries in

Sub-Saharan Africa
Cameroon
Chad
DRC
Ghana
Guinea
Madagascar*
Niger
Rwanda
Senegal
Sierra Leone
South Africa
Tanzania
0% 20% 40% 60% 80% 100%
Sector-specific tax Other tax
VAT Spectrum fees Regulatory fees Import duties on usage (incl. coporation tax)
*=2014 Source: GSMA Intelligence
2.3 Consumer taxes and fees

Mobile subscribers in Sub-Saharan Africa are subject to general taxes such as VAT but also incur sector-specific
taxes and charges.12 These include taxes and fees on usage (voice, SMS and data), SIM activation and connection
charges, while handsets and other mobile devices also often incur import or customs duties at higher rates. In
addition, general taxes levied on mobile services such as VAT may be charged at higher rates relative to other
sectors. Collectively, these taxes directly impact the prices paid by consumers and can be particularly regressive
in that the tax burden disproportionately falls on those with lower incomes.
TAXES ON HANDSETS AND OTHER DEVICES
First, consumers need to purchase a device that is • In the DRC, the sale of goods and services is
generally subject to VAT and customs duties but often subject to the standard VAT rate of 16% that was
also sector-specific taxes on handsets – all of which introduced in 2012 to replace local turnover taxes.
serve to increase the device acquisition cost and the In addition, any imported handsets are subject to
cost of accessing mobile services. While an increasing a customs duty of 27.6%, calculated on the cost,
number of countries have introduced tax exemptions insurance and freight value of the handsets.
on importing handsets over the last decade, as of 2016
• In contrast, in 2009 the Kenyan government
handset taxes on average still accounted for 23% of the
decided to implement a series of tax exemptions
final cost of handsets.
on handsets, removing the 16% VAT rate on mobile
handsets. Rwanda and Senegal also exempt
• Chad has the highest combined handset tax rate
mobile handsets from all forms of taxation, and an
in the region. A standard VAT rate of 18% is applied
increasing number of countries in the region have
to all devices sold domestically, including imports,
introduced custom duty exemptions on handsets,
and any device that is imported from outside
including Lesotho, Malawi and Togo.
the Central African Economic and Monetary
Community (CEMAC) region is subject to customs
duty at a rate of 30%, which is the highest bracket
for customs duties.
12 See Appendix for details on sources of consumer tax rates.
14
Figure 8
Combined handset tax rates in 2016

60% Sector-specific tax Custom duty
VAT on handset on handset on handset
50%
40%
30%
20%
10%
0%
Chad
Gabon
DRC
Guinea
Zimbabwe
Niger
Zambia
Madagascar
Cameroon
Congo
Côte d'Ivoire
Ghana
Mozambique
Gambia
Sierra Leone
Angola
Tanzania
Uganda
Malawi
Burkina Faso
Mauritius
Ethiopia
South Africa
Swaziland
Lesotho
Botswana
Rwanda
Kenya
Senegal
ACTIVATION AND CONNECTION CHARGES
Consumers may incur activation charges and/or SIM taxes that are levied in addition to the handset taxes
described above. While these types of charges are relatively rare internationally, our research suggests there
are five countries in the region that levy such activation charges. In most cases, these are fixed amounts so
disproportionately affect those on lower incomes.
Table 3
Countries in Sub-Saharan Africa that levy activation taxes on mobile

service
Country Activation taxes and fees
Chad SIM tax: XAF1,000 ($1.7) and 1% additional VAT which is

sector-specific and is also applied to top-up cards
Numbering fee: XAF165 ($0.3)
Gabon SIM tax: 18% excise charge
Ghana Numbering fee: up to $0.50*
Niger SIM tax: XOF250 ($0.4)
Nigeria Numbering fee: NGN10–20* ($0.05–0.10)
*Annual charges
15
TAXES ON MOBILE USAGE
Once the consumer has invested in a handset and The combined usage tax rates average 21% across
incurred any activation charges to access mobile the region for countries where data is available.
services, they are then subject to the costs of using Furthermore, 17 of the 30 countries in Sub-Saharan
the mobile phone or device. The cost includes spend Africa where we have data levy a sector-specific tax on
on calls, SMS and data, which are affected by both usage (voice, SMS and data), with Gabon, Tanzania and
general sales taxes and sector-specific taxes. The Zambia charging the highest rates at 18%, 17% and 15%
cost of usage accounts for the largest component of respectively.
the TCMO for consumers in Sub-Saharan Africa. As
such, taxes levied on mobile usage have a significant
effect on affordability and thus negatively impact
development of the mobile sector.
Figure 9
Combined usage tax rates in 2016

40%
Mobile-specific
VAT on usage tax on usage
35%
30%
25%
20%
15%
10%
5%
0%
Gabon
Tanzania
Zambia
Madagascar
Uganda
Chad
Rwanda
Guinea
Malawi
DRC
Kenya
Ghana
Niger
Cameroon
Côte d'Ivoire
Zimbabwe
Congo
Burkina Faso
Mozambique
Gambia
Sierra Leone
Mauritius
Ethiopia
South Africa
Swaziland
Botswana
Senegal
Angola
Lesotho
SURTAX ON INTERNATIONAL INCOMING TRAFFIC
Consumers in a number of countries in the region are also affected by the surtax on incoming international traffic
(SIIT). This tax fixes termination charges on incoming international calls, with the government collecting a certain
portion. In a study by the GSMA (September 2014)13 it was found that in the countries where SIIT is applied,
the tax has caused the price of terminating international incoming calls to increase by an average of 97%. SIIT
impacts businesses by creating barriers to regional and international trade through the increased cost of received
international calls. Table 4 summarises some of the SIIT charges levied across the region.
13 Surtaxes on International Incoming Traffic in Africa, GSMA and Deloitte, September 2014
16
Table 4
Examples of SIIT charges in select Sub-Saharan African countries
Country SIIT
Chad XAF50 ($0.08) per minute
DRC $0.08 per minute
Ghana GHS0.13 ($0.03) per minute
Guinea GNF571 ($0.07) per minute
Niger XOF88 ($0.15) per minute
Rwanda RWF85 ($0.12) per minute
2.4 Mobile operator taxes and fees

Mobile operators also face a wide range of taxes and fees including corporation tax, revenue charges such as
universal service fund (USF) contributions, regulatory fees and import duties on network equipment. Some of
these charges are either specific to the sector or create a disproportionate burden on the mobile sector compared
to other areas of the economy. Furthermore, sector-specific taxes and fees are not always transparent and add to
the complexity of the tax system, thus increasing the compliance requirements faced by mobile operators relative
to firms in other sectors of the economy.
Mobile operators also make one-off and recurring REGULATORY TAXES AND FEES
payments to secure licences and radio spectrum. While
the fees are meant to reflect the value that mobile Mobile operators are also subject to various regulatory
operators generate from using scarce resources as well fees and contributions each year such as annual
as the cost of spectrum management, the fees are often numbering and licence fees, USF contributions and
set over and above these values and are frequently used one-off fees that are paid by operators to acquire
as a revenue-raising instrument by governments. and provide for the administration of spectrum
frequencies. Many of these fees apply to revenues
TAXES ON REVENUES AND PROFITS and, in 2015, for the 12 countries for which we have
data on regulatory fees, they represented 13% of
Further to general taxes such as corporation tax and revenues on average, reaching as high as 31% in the
other taxes on profits that usually apply to all sectors, DRC. Regulatory fees in the DRC include a number of
mobile operators in certain countries are subject to payments, including an annual regulatory payment
additional taxes on profits or revenues, or face higher as part of the licence arrangement of 2% charged
rates of corporation tax. For example, in Côte d’Ivoire, on revenues from the provision of GSM and internet
mobile operators are subject to a sector-specific 30% services. This is in addition to the one-off fees incurred
corporation tax rate, which is higher than the standard for obtaining the licences.
corporation tax rate of 25% applied on other sectors in
the country.
17
Figure 10
Regulatory fees as a share of total tax payments in 2015
31%
19%
17% 16%
13% 12% 12% 11%
7% 7% 5%
2%
C
l
d
er
da
r*
ia
na
a
ga
ne
ic
on
oo
ha
R
an
ca
ig
ha
an
fr
D
ne
ui
Le
C
er
as
nz
A
G
w
G
Se
am
ag
Ta
h
R
ra
ut
er
ad
C
So
Si
*=2014
Regulatory taxes and fees are often subject to change. This lack of transparency can negatively impact future
investment decisions due to lower returns on investment and capital employed and due to uncertainty over
future tax liabilities. Moreover, taxes and fees levied on revenues are particularly distortive to investment as they
affect operators in the same way regardless of their level of investment spend.
IMPORT DUTIES ON NETWORK EQUIPMENT
Some countries in Sub-Saharan Africa impose duties and surcharges on the importation of network equipment
(such as antennas and base stations) at higher rates than other goods and services.
• In Chad, customs duty rates vary depending on the • In Niger, any device imported from outside the
nature of the imported good, with rates ranging West African Economic and Monetary Union
from 2% for radio equipment such as antennas or (UEMOA) region is subject to the External Tariff.
software to 30% for battery equipment. Mobile The External Tariff comprises a custom duty
towers are subject to an additional charge (taxe between 5% and 20%, depending on the type of
sur les pylônes) which is based on 10% of the equipment, and additional charges of 4%.15 The
annualised capital value during the asset’s life.14 total charges therefore range between 9% and
24%. The standard VAT rate of 19% is levied on the
• In Ghana, whereas imported telecommunications
value of the equipment and on the payments of the
network equipment is subject to customs duty
UEMOA External Tariff.
(base stations, for example, are subject to
import duties of 10%), the government of Ghana
has granted customs and VAT exemptions for
machinery and apparatus used in other sectors
such as agriculture, mining and transport.
14 Digital inclusion and mobile sector taxation in Chad, GSMA and Deloitte, November 2016
15 Digital inclusion and mobile sector taxation in Niger, GSMA and Deloitte, January 2017
18
CASE STUDY
Taxation on mobile money
Mobile money continues to enable financial inclusion in developing countries,
giving people access to transparent digital transactions and expanding access to
unbanked households. There were 139 live services in 39 countries across Sub-
Saharan Africa as of March 2017, accounting for nearly 280 million registered
accounts and around 1.5 million registered agents. The spread of these services
has driven greater financial inclusion in many developing countries, enabling
those people without access to traditional banking and financial services to
pay, transfer and save money through their mobile phones. More than 40% of
the adult population now use mobile money regularly (90-day activity basis) in
seven Sub-Saharan African countries – Gabon, Ghana, Kenya, Namibia, Tanzania,
Uganda and Zimbabwe.
Figure 11
Registered mobile money accounts in Sub-Saharan Africa

300
Millions
250
200
150
100
50
0
2011 2012 2013 2014 2015 2016
Eastern Africa Western Africa Central Africa Southern Africa
During this impressive growth period, the service has is regressive, negatively impacting users who would
also attracted a number of sector-specific taxes. Some not otherwise be in the financial system. Safaricom’s
of these apply to mobile operators and any other m-Pesa in Kenya is widely recognised as a pioneer of
institutions that provide similar banking services, while mobile money payments. However, in 2012 the Kenyan
in other cases they apply to mobile operators only. government announced a 10% tax on mobile payments
With taxes on mobile money transactions on the rise and other financial transactions; in the three months
in Sub-Saharan Africa, there is concern that mobile following the introduction of the tax, mobile payment
money development could be compromised as this tax transactions fell by almost 5%.16
16 “Charging the mobile”, The Economist, June 2013
19
Table 5
Examples of countries that have introduced taxes and fees on mobile

money services
Country Mobile money tax or fee
Kenya 10% of mobile money transaction fees
Uganda 10% of mobile money transaction fees
Tanzania 10% of P2P transfer charges
Zimbabwe $0.05 per transaction
DRC 3% of mobile money turnover
Tanzania 10% extended to all transfers, for both receivers and senders
The success of mobile money in Tanzania has led to a misconception around the potential revenues that can be
generated from the industry in the form of taxation. This is fuelled by the claim that more than 50% of Tanzania’s
GDP flows through mobile money. This claim is grossly exaggerated as it takes into account the total throughput
value transacted on mobile money rather than the contribution of mobile money to GDP (output). The potential
contribution of mobile money taxes to national tax remains very minimal. Even if tax were doubled, operator fees
as a proportion of total government expenditure would only amount to circa 0.18%.
Disproportionate taxation of mobile money puts a wide range of positive externalities at risk. These positive
externalities include the following:
Individuals Economy
• Increased employment and investment • Higher per capita income due to rising productivity
and employment rates
• Wider access to savings, credit and insurance
• Cost and time savings for financial institutions and
• Deepening financial inclusion
businesses as they digitise payments
Government
• Investment in education and healthcare leading to
• Higher tax base and receipts due to sector
higher capital development
revenues and employment
Supportive taxation can play a key role in the
• Lower risk of fraud and theft of public funds
development of emerging services such as mobile
remitted to vulnerable groups through social
money. A number of principles for reforming sector-
subsidies
specific taxation and fees should be considered by
• Greater access to government services for governments in Sub-Saharan Africa, in order to align
underserved areas mobile taxation with that applied to other sectors and
with best-practice taxation principles.
20
CASE STUDY
Recent tax reform for mobile services in
Sub-Saharan Africa (2011–2016)
GHANA TOGO CAMEROON CHAD
20%10% 0% 0%2%
on all usage
30%10% 0%2.5%
of turnover, USF tax
GAMBIA
20%5%
ETHIOPIA
12%0%
GUINEA
0%3% 30%20%
in general, plus
5% for data,
and flat rates
RWANDA
30%0%
on per minute
and per SMS
ZAMBIA
BENIN GABON
15%17.5%
NA%2%
of turnover, excluding tax
30% 10% on all usage
and interconnection charges,

contribution to development;
0%10%
DRC
of turnover, sector-specific tax 18%16%

Decrease in standard VAT
MADAGASCAR
ANGOLA 7%10% 25%10%

10% 5%
on all usage
A sector-specific VAT rate was

introduced that was lower than
the standard VAT rate that ZIMBABWE LESOTHO MALAWI
5% 10% 0.5%1.5% 9%0% 10% 0%

previously applied to the sector
on all usage of turnover, USF tax
INCREASE IN RATES DECREASE IN RATES

Sector-specific taxes and fees on voice, SMS and data VAT
Examples of changes in operator taxes and fees Customs duty on handsets
21
3
Mobile sector
taxation and its
impact on
affordability and
investment
3.1 Sector-specific taxation raises affordability
barrier and risks undermining digital
inclusion efforts
Affordability of mobile services is the ability of The analysis presented in this section specifically
consumers to pay for the total cost of using mobile focuses on the Basic (100 MB of data) and Low (500
services. This consists of the cost of purchasing a MB) baskets to assess the impacts of taxation on
handset, the cost of activation or connection and affordability for low- to middle-income consumers. This
the cost of usage (voice, data and SMS).17 The sum approach provides a more realistic picture of the costs
of these components is referred to as the total cost faced by the typical mobile user in the region, taking
of mobile ownership (TCMO). Taking account of the into account factors such as disposable income, mobile
different usage profiles and the numerous products internet penetration and typical data usage across the
available on the market, this report reviews the prices region and in comparable developing markets.
of four baskets that are used to estimate the TCMO
(Table 6). These baskets represent the monthly cost
of the cheapest device (which has internet browsing
capabilities), the monthly costs associated with
activation and connection, and the cheapest tariff
price (either bundled or unbundled).18 Further details
on the methodology and data for this analysis can be
found in the Appendix.
17 For the purposes of this analysis, we do not account for the energy cost of charging due to a lack of data.
18 The baskets have been defined and created by the GSMA based on data provided by Tarifica.
22
Table 6
Summary of monthly usage baskets used for calculation of TCMO
Baskets
Basic Low Medium High
250 voice minutes

Usage
100 MB data 500 MB data 100 SMS 5000 MB data
allowance
1000 MB data
Tariff Prepaid Prepaid or postpaid Prepaid or postpaid Prepaid or postpaid
Technology 2G, 3G or 4G 3G or 4G 3G or 4G 3G or 4G
AFFORDABILITY CREATES BARRIERS FOR THE UNCONNECTED, PARTICULARLY THOSE AT

THE BOTTOM OF THE INCOME PYRAMID
A higher cost of mobile access will have a greater mobile markets, the equivalent share of TCMO in
impact on the lowest earners, as it constitutes a income for a selection of Western European countries19
higher share of their monthly income. Therefore, is 0.7% for the bottom 40% income groups and 0.4%
addressing affordability issues is key to achieving for the entire population.
greater digital inclusion including increased subscriber
penetration and the extension of mobile services to the The UN Broadband Commission for Sustainable
unconnected across the region. Development suggests a 5% threshold of income for
the cost of a 500 MB per month mobile broadband
Analysis of the Low basket (500 MB) for 27 countries bundle. This implies that the average TCMO for the
in the region shows that in 2016 the TCMO represented Low basket in the Sub-Saharan African countries
on average 10% of monthly income in Sub-Saharan included in this analysis is approximately five times
African countries where data is available. However, for the suggested threshold and is thus unaffordable for
those in the bottom 40% income group, the average consumers in the bottom 40% income group in 26 of
share of income is 25% and reaches as high as 68% the 27 countries.
in the DRC. To put this in context with more mature
19 The selected Western European markets include Austria, Belgium, France, Germany, Luxembourg, Netherlands and Switzerland
23
Figure 12
TCMO of Basic and Low baskets for different low-income groups in

select countries in Sub-Saharan Africa in 2016
100%
80%
60%
40%
20%
UN Broadband
Commission
suggested
threshold
5%
0%
M C
i
m go
e
ag d
B r
in
az er
nd
na li
Et aso
Za ia
C ia
U go
w a
a
d' a
er e
Ta oon
Se nia
sw l
G a
A ea
So G la
A a
a
aw
ot ga
ca
ki Ma
ny
bw
am ir
nd
am d
an
ut an
ic
qu
a
R
op
o
en
Sw ig
n
C Ivo
ad h
oz an
ila
Zi To
on
fr
a
D
ng
m
ne
as
al
ôt Ke
h
ui
C
ga
bi
N
nz
ba
hi
h
R
B
ur
M
C
B
TCMO of Low basket as a proportion TCMO of Basic basket as a proportion

of monthly income for the of monthly income for the
bottom 40% income group bottom 20% income group
Source: GSMA Intelligence, Tarifica
In the majority of African countries, average mobile data usage is however much lower than in other regions, in
the 60–120 MB range and in some cases less than 60 MB per person per month. 20 It is therefore important to
assess more specifically the affordability and cost of that lower usage. As such, the Basic basket captures the cost
of accessing 100 MB of data in each country and therefore provides an important benchmark when assessing
affordability in the region. The TCMO of the Basic basket on average represents almost a quarter of monthly
income for the bottom 20% income group. At just over 80%, TCMO as a share of monthly income is highest in
Togo, followed by Madagascar, Malawi and Chad at 52%, 51% and 47% respectively. Even with low levels of mobile
data usage, significant affordability challenges remain among a large share of people in the region.
20 State of the Mobile Web Africa 2016, Opera, November 2016
24
HIGH SECTOR-SPECIFIC TAXATION IS A MAJOR BARRIER TO MOBILE AFFORDABILITY
Taxation applied to the mobile sector contributes to In Sub-Saharan Africa, taxation represents 22% of the
the TCMO and acts as a barrier to the affordability TCMO on average for all baskets, while sector-specific
of mobile services. Based on the tax payments data taxes represent 5% of the TCMO on average. Based on
provided by mobile operators for the sample of 27 the Low basket, taxation represents more than a third
developing countries, consumer taxes as a proportion of the TCMO in Chad, Guinea, Zambia and Madagascar.
of the TCMO have been estimated. These estimates Chad has the highest proportion of sector-specific tax
do not take into account the portion of taxation on to TCMO at 14%, followed by Zambia at 13%.
operators that may be passed through to consumers,
meaning that it is likely that the proportion of tax in the
TCMO is higher in practice.
Figure 13
Tax as a proportion of TCMO (Low basket) in 2016

40%
35%
30%
25%
20%
15%
10%
5%
0%
G d
Za a
ag ia
Ta car
ia
a
na
M r
b n
d' e
re
C a
R go
am da
na e
so
az a
d
Se la
l
am aw
ga
e
ny
w
ne
nd
pi
Sw ric
an
u
Zi roo
ha
B lan
R
b
an
o
oi
ig
Fa
ha
ur biq
oz an
on
ôt ab
D
ng
m
So thio
ne
as
al
Ke
sw
ui
f
Iv
C
ga
N
nz
i
A
e
G
A
ot
U
h
m
E
ki
ut
ad
e
C
M
M
C
General Sector-specific
25
LEVEL OF TAXATION ON MOBILE OWNERSHIP CAN BY ITSELF MAKE THE SERVICE

UNAFFORDABLE
High levels of taxation on consumers can be regressive itself is making the service unaffordable for a large
as the tax burden falls disproportionately on those share of society, even without considering the actual
with lower incomes. In seven countries included in the price of the device and the service. This ratio of tax in
analysis, the level of taxation in the TCMO (Low basket) the TCMO is highest in the DRC, at around 20% for the
represents more than 5% of monthly income for the bottom 40% income group.
bottom 40% income group. In this case, taxation by
Figure 14
Tax in TCMO (Low basket) as a proportion of monthly income for the

bottom 40% income group in select Sub-Saharan Africa countries in 2016
6%
7%
4%
3% 2%
1%
UN Broadband Commission
suggested threshold
13%
11% 10% 3% 5%
9% 9% 7%
4%
DRC Malawi Chad Zimbabwe Madagascar Niger Zambia
General tax as a % Sector-specific tax as a %
of monthly income of monthly income
A higher share of the TCMO in monthly income is in a number of cases partly driven by the higher levels of
sector-specific taxation as a percentage of monthly income. In the DRC and Chad, at 6% and 7% respectively,
the proportion of sector-specific taxation represents much more than 5% of monthly income.
26
Figure 15
TCMO's share of monthly income versus sector-specific tax in TCMO as a

percentage of monthly income for bottom 40% income group in 2016
80%
TCMO (Low basket) as a % of monthly income
70%
60%
50%
40%
30%
20%
10%
0%
0% 1% 2% 3% 4% 5% 6% 7%
Sector-specific tax in Low baskets as a % of monthly income
Circles show select countries in Sub-Saharan Africa used in this analysis

The cost of handsets and other mobile devices is the Sub-Saharan African countries for which we have
also a barrier to connectivity. This often needs to be data. This share of income is highest in Malawi, where
paid upfront and can represent a large proportion the cost of the handset accounts for 24% of monthly
of monthly income for those in the lowest income income. However, mobile usage costs account for the
brackets. Although device costs in the region have largest share of TCMO, at 79% on average across the
fallen in recent years, the cost of purchasing a basic region for the Low bundle. As a result, taxation and
internet-enabled phone is still estimated to be 7% of fees levied on usage account for the majority of taxes
monthly income for the bottom 20% income group in in the TCMO.
Figure 16
Taxes by type as a percentage of TCMO (Low basket), 2016

40%
35%
30%
25%
20%
15%
10%
5%
0%
d
ag a
ia
RC
na
er
am wi
re
Rw o
am a
nd
a
so
ia
Sw ica
Se a
l
ga
ca
ny
w
ne
nd
an
d
ol
qu
oo
g
ha
an
op
oi
ig
Fa
ha
an
ila
on
fr
b
D
ng
m
ne
as
al
Ke
w
ui
Iv
C
ga
bi
er
N
nz
ba
A
hi
az
G
Za
ts
a
G
d'
A
Et
U
Ta
in
h
m
Bo
ut
ad
rk
Zi
oz
C
ôt
So
Bu
M
Device tax as a Usage tax as a Activation tax as a

proportion of TCMO proportion of TCMO proportion of TCMO
27
3.2 Uncertain and complex taxation regimes

affect operators’ ability to invest in
infrastructure rollout
The mobile industry is characterised by significant of local currencies means this strong capex is only
upfront investment in spectrum licences, equipment reflected partially when looking at figures across
purchases, network rollout and points of sale. In the region in dollar values. MTN Group reported an
Sub-Saharan Africa, which has a predominantly increase in capex for the year in local currency, but this
rural population, the costs involved in extending was affected by double-digit average depreciation of
and upgrading mobile networks are substantial. local currencies in several key markets, including South
Approximately half the population or almost 500 Africa (16%) and Nigeria (19%) during 2016. Capex is
million people live outside the coverage of a 3G mobile expected to pick up again in 2017, and out to 2020
network. This coverage gap reflects the fact that mobile operators are forecast to invest a cumulative
deploying infrastructure in remote areas can be twice $31 billion. 23 This period of sustained and needed
as expensive, but with revenue opportunities as much investment comes despite slowing revenue growth
as ten times lower than in urban areas. 21 in the region, which stood at 3.9% in 2016, driven by
macroeconomic weakness and the growing uptake of
Mobile operators in the region invested $37 billion IP-based services. This has had a negative impact on
in their networks over the past five years, 22 mainly in blended ARPU levels, which have declined 15% over
deploying high-speed mobile broadband networks: the last five years.
88 3G and 91 4G networks were launched across the
region over this period. However, the depreciation
Figure 17
Capex and ARPU in Sub-Saharan Africa

8
6
Capex ($ billion)
ARPU ($)
7
5.2
5
4.9
6
4.4 4.4
4.2 4.1
4.0 3.9 4
5 3.8
4
3
2012 2013 2014 2015 2016 2017 2018 2019 2020
Capex ARPU
($ billion) ($)
21 Unlocking Rural Coverage: Enablers for commercially sustainable mobile network expansion, GSMA, July 2016
28
Mobile operators in Sub-Saharan Africa are often and growth in developing countries. For example, one
part of multinational companies that operate in a study finds that good infrastructure promotes FDI
large number of countries. The capital expenditure in Africa, 24 while another finds a positive relationship
undertaken by these firms therefore represents an between mobile penetration and FDI in developing
important source of foreign direct investment (FDI) in countries. 25
the region. Given that finite budgets are often set by
headquarters, it is more likely for funds to be diverted THE IMPACT OF SECTOR-SPECIFIC
from less attractive markets to markets with higher TAXATION ON INVESTMENT AND
expected returns. As such, promoting investment in INFRASTRUCTURE DEVELOPMENT
the telecoms sector could help drive FDI higher in the
region. Well-developed mobile infrastructure can be Although the mobile sector has made considerable
particularly important as it can benefit other sectors, investments over the last decade, the majority of
may enhance the ease of doing business and attract countries in Sub-Saharan Africa lag significantly
foreign investors. behind the developing market average in terms of
infrastructure, as measured by the Mobile Connectivity
The importance of FDI in supporting economic and Index infrastructure enabler indicator. There is a
social progress in developing countries has been negative correlation between the infrastructure
recognised in numerous studies. Academic research enabler score and higher levels of taxation on mobile
has broadly found a positive relationship between FDI operators as a proportion of revenues.
Figure 18
Operator tax and fee payments as a share of sector revenues (2015)

versus Mobile Connectivity Index infrastructure enabler indicator (2016)
50%
Operator tax and fee payments as a share of sector revenues in 2015
Guinea
40%
Chad
30%
Niger DRC
20%
Ghana
Tanzania South Africa
Cameroon
10%
Senegal
Madagascar* Rwanda
0%
0 10 20 30 40 50 60
Infrastructure enabler score
*=2014
24 Foreign direct investment in Africa: The role of natural resources, market size, government policy, institutions and political instability, The World Economy, 2006
25 Communications networks and foreign direct investment in developing countries. Communications & Strategies, 2005
29
The level of taxation directly affects mobile operators’ financial ability to invest, while tax complexity and uncertainty
may also affect future investment incentives and ease of doing business in the region:
• With frequent tax changes, returns on investment if they perceive that their expected returns will be
are less certain and investment may be deterred, extracted in future spectrum auctions. Operators
especially where significant upfront investments may may also face internal financing constraints due to
need to be recovered over a long time period, as in high auction prices: this could increase the likelihood
the mobile sector. of market exit. Furthermore, firms with high sunk
costs may be more reluctant to engage in price
• Fees on revenues rather than profits may discourage
competition; instead, the high upfront fees could act
investment and innovation, as these fees require
as a signal for firms to set higher prices.27
the same payment from an operator regardless of
whether it retains its profit or uses it to invest in new • Taxation on infrastructure and duties on importing
infrastructure and services. network equipment can act as a significant barrier
to investment in networks by directly increasing the
• Spectrum auction and fees are recurring transactions
cost of equipment. This can reduce the business case
that when priced too high can negatively affect
for upgrading and extending coverage through new
consumers, mobile sector investment and the
infrastructure investment, which can be particularly
wider economy. The hold-up problem26 could force
detrimental for unconnected areas.
operators to moderate their investment behaviour
Governments around the world have recognised the importance of policies that support the ICT sector, resulting in
digital agendas that set ambitious connectivity objectives that often rely on mobile networks to fulfil them. Expanding
coverage is an important part of the mobile industry’s agenda, and operators have been able to optimise infrastructure
investments through initiatives such as infrastructure sharing. However, it is vital that the public sector enables a
favourable regulatory environment, including supportive taxation policies, which can unlock private sector investment.
Sub-Saharan African countries where operator taxes as a proportion of sector revenue are lower are also more
attractive for investment, as measured by the Africa Investment Index (AII) developed by Quantum Global Research
Lab.28 The AII measures countries and markets which are most attractive for investment in the short to medium term
across growth, liquidity, risk, business environment, demographic and social capital factors.
Figure 19
Operator tax and fee payments as a share of sector revenues (2015)

versus the Africa Investment Index Score (2016)
50%
Operator tax and fee payments
as a share of sector revenues in 2015
Guinea
40%
Chad
30%
DRC Niger
20% Ghana
Tanzania
South Africa
10%
Cameroon
Senegal
Rwanda Madagascar*
0%
0 5 10 15 20 25 30 35
Africa Investment Index Score (lower score = higher rating)
*=2014 Source: GSMA Intelligence, Quantum Global Research Lab
26 Hold-up arises when the return on one party’s sunk investments can ex post be expropriated by another party. In the case of spectrum licences, the government can expropriate
the returns on other sunk investments (such as in network infrastructure) made by a mobile operator by overcharging for access to spectrum. The hold-up problem has played
an important role as a foundation of modern contract and organisation theory. The associated inefficiencies have justified many prominent organisational and contractual
practices. Source: Effective Spectrum Pricing: Supporting better quality and more affordable mobile services (GSMA/NERA Consulting 2017)
27 For more information on effective spectrum pricing, see the report by 2017 GSMA/NERA Consulting:
gsma.com/spectrum/wp-content/uploads/2017/02/Effective-Spectrum-Pricing-Full-Web.pdf
28 quantumglobalgroup.com/wp-content/uploads/2017/04/Africa_Investment_Index_April_2017_18.04.2017Final_Curves.pdf
30
CASE STUDY
Nigeria
Nigeria is the largest mobile market in the region in terms of subscribers. Since the
introduction of mobile services in 2001, the market has grown to over 86 million
unique subscribers. However, the investment climate in Nigeria faces challenges
due to the geographic features of the country and security concerns which
increase investment risk. In addition, investing in mobile sites depends on the
existence of a functioning road network, and while gaps in electricity grids can be
overcome by employing diesel generators, this proves costly to mobile operators.
These challenges have contributed to a situation today Challenges remain that are limiting operators’
where many Nigerians are not covered by mobile incentives to invest. Mobile operators have identified
networks; 3G coverage is available for 70% of the several policy and environmental issues that add to
population, and 4G coverage is available for only 51% the cost of network investment in Nigeria, including:
of the population. 29 This particularly impacts Nigerians high costs of rights of way, 31 delays in obtaining
who live in rural areas. Even where coverage exists, permits, an inadequate electricity supply that severely
services are sometimes reportedly unreliable. While disrupts network services and forces mobile operators
network infrastructure is being upgraded in many to use diesel generators to power base stations, 32
areas, service penetration and usage have increased underdeveloped road infrastructure, and frequent
at a very fast pace and mobile networks have suffered and costly damage to networks caused by road
from congestion. 30 construction accidents, sabotage and terrorism. 33
Extending service availability to uncovered regions Mobile operators are also exposed to multiple
and improving the quality of service require significant regulations and taxation at various levels of
network investment by mobile operators. To ensure government that make investment more costly, limiting
a high quality of service and extend coverage, it is mobile operators’ ability to undertake upgrades and
necessary to have more low frequency spectrum roll out network infrastructure. 34 Regulatory taxes
available and a clear long-term strategy for spectrum and fees can particularly constrain investment in
allocation and licence renewal. Nigeria, especially in a competitive market where
mobile operators have been experiencing declining
ARPU levels. This can make it more difficult for mobile
operators to make a business case for investment,
particularly in poorer, rural areas where average
revenues may be expected to be lower. Furthermore,
despite the declining ARPU levels, affordability is still
an issue in the country. The TCMO of the Low basket
(500 MB) as a proportion of monthly income is 6% for
the bottom 40% income group – above the suggested
5% threshold. Thus higher taxation on mobile services
could act as a major barrier to affordability of services
in Nigeria and should be discouraged.
29 GSMA Intelligence estimate

30 Buddecomm, Nigeria – Mobile Market – Insights, Statistics and Forecasts, 2015
31 Rights of way refer to the allowance of undertakings, such as installing network equipment, on public or private properties
32 Operators use 1.4m litres of diesel per day to power base stations. Source: Nigeria Communications Week, February 2, 2015, “Operators use 1.4m litres of diesel daily to power BTS”
33 GSMA Country Overview: Nigeria, 2014, Nigeria’s National Broadband Plan 2013-2018, Buddecomm, Nigeria – Key statistics, telecom market and regulatory insights, 2015
34 Nigeria’s National Broadband Plan 2013–2018
31
CASE STUDY
Senegal
As well as general taxes, such as VAT, mobile consumers in Senegal have to pay an
additional tax charged on telecoms services at 5% of revenue (RUTEL). Operators
also have to pay additional sector-specific taxes such as:
CODETE: 5% of operator turnover. Of this Special Levy in Telecommunications (PST):

tax payment, only 2.5% goes to the Telecom 1% on turnover before tax.
Universal Service Development Fund, with
the rest being allocated to the Energy Sector
Support Fund.
The combined revenue from RUTEL, CODETE and PST accounts for 20% of tax revenue from mobile in 2015, 35
and the total tax and fee payments for Senegal are 22% of the revenue of the mobile sector.
Whilst other developments in the country may have affected the mobile sector, evidence from GSMA Intelligence
shows that tax changes on mobile in Senegal were associated with changes in the growth rate of unique
subscriber penetration:
• The market penetration of the mobile sector • After the removal of the rural telephony fee, 3% of
measured by total subscribers showed slower net revenues, in 2012 unique subscriber penetration
growth in 2011 when the RUTEL tax was increased growth increased from 5% at the beginning of 2012
from 2% to 5% and growth fell later in 2011 when to 19% at the beginning of 2013.
the CODETE was increased.
• The growth subsequently slowed down again after
the imposition of PST in 2014.
Figure 20
Annual change in unique subscriber penetration
25%
1 2 3 4 1 Rutel tax increase from 2% to 5%
2 CODETE increased from 3% to 5%
3 Removal of rural telephony tax
20% 4 Introduction of PST
15%
10%
5%
0%
2010 2011 2012 2013 2014 2015 2016
35 Analysis based on data provided by mobile operators
32
4 eforming
R
taxation to enable
connectivity and
deliver growth
4.1 Significant economic benefits can be
delivered by reducing sector-specific
taxation and fees
The development of ICT technologies and access to investment and economic features of the industry.
mobile broadband are central objectives of many This potentially creates a number of distortions that in
governments worldwide. Promoting and extending the medium term can act to discourage investment,
connectivity has the potential to deliver substantial harm consumers and constrain the extension of mobile
economic and fiscal benefits and is recognised as connectivity to those that remain unconnected.
a crucial enabler in achieving the UN’s Sustainable
Development Goals. Over the last 10 years, countries that have supported
the connectivity agenda through a balanced and
While recognising the need for governments to equitable tax system and through reductions in
raise revenue to finance public expenditure, sector- sector-specific taxes and fees have seen positive
specific taxation and fees on the mobile industry developments with regards to mobile access,
are often levied in ways that do not account for key penetration and usage.
CASE STUDY ENABLING TAX PAYMENTS THROUGH MOBILE MONEY IN TANZANIA
By supporting innovative services such as mobile money, government can not only broaden the tax base but also
support a reduction in tax complexity and increase in tax compliance. A number of African countries are already
enabling citizens to use mobile money to pay their taxes, which can serve to reduce the cost of tax compliance.
For example, in August 2013, the Tanzania Revenue Authority enabled tax payments over mobile money for
personal income and property taxes. Within one year of the introduction of this service, 15% of the tax base were
making payments via mobile money, including people with no history of paying taxes.
33
CASE STUDY VAT EXEMPTIONS ON HANDSETS IN KENYA CONTRIBUTE TO GROWTH
Countries such as Kenya, Rwanda and Senegal have exempted mobile handsets from VAT. In 2009, the Kenyan
government removed the 16% VAT rate on mobile handsets. Over the following three years, the VAT reduction
contributed to a 200% increase in handset sales and an increase in unique mobile subscriber penetration from
29% to 39%. 36 Over the same period, the contribution of mobile to the Kenyan economy grew by nearly 250%,
while mobile-related employment increased by 67%. 37
Figure 21
Unique subscriber penetration and handset sales following removal

of VAT in Kenya
250,000
39%
200,000
29%
150,000
100,000
50,000
0
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Number of handsets sold Unique subscribers
(Safaricom) penetration
Source: GSMA Intelligence, Safaricom

37 Deloitte/GSMA, “Mobile telephony and taxation in Kenya”, 2011
34
REMOVING SECTOR-SPECIFIC TAXES AND FEES CAN SUPPORT DIGITAL INCLUSION
Over the last few years, the GSMA has extensively The research suggests that by expanding the user
studied the effects of reforming sector-specific taxes base and use of services, tax reductions can result in
and fees in a number of countries. Through macro- an increase of the tax base and allow maintenance
economic models that measure both industry and of tax neutrality in the medium term. A reduction
economy-wide impacts, these studies have estimated in sector-specific taxes and fees on the mobile
the benefits of reducing sector-specific taxation. industry can improve digital inclusion, mobile sector
development and economic growth. Governments can
also achieve higher tax and fee revenues through more
efficient, equitable and broad-based taxation in the
long run.
Figure 22
Estimated additional impact of mobile tax reforms across selected

countries, compared to base case over four to five years
Chad Year of tax change 2017
Reduction on excise duties on daily usage (RAV)

Niger Year of tax change 2017 and on each call made (FNDS)
Incremental impact in 2021
Removal of tax on incoming international calls (TATTIE)
Incremental impact in 2021 40 $118 $2.2 $29
70 $189 $4.8
thousand million million
$63
million
thousand
connections
million
GDP
million
tax revenue
million
investment
connections GDP tax revenue investment
Ghana Year of tax change 2016
Reduction in service tax on voice services

and abolition on data
1.3 $598 $0.67 $202

million million million million
Democratic Republic
of the Congo (DRC) Year of tax change 2017
Abolition of excise tax of 10% on mobile services

3.2 $970 $28 $230

million million million million
Tanzania Year of tax change 2016
GDP tax revenue
connections investment Reduction in the excise tax on mobile services
from 17% to 10%
1.7 $549
million million
$11 $172
million million
Source: GSMA/Deloitte reports: Digital inclusion and mobile sector taxation in the Democratic Republic of the Congo, Ghana, Tanzania, Chad and Niger
35
4.2 Areas for reform to support mobile sector

and region’s economic growth
By reforming sector-specific taxes and fees, governments can play a key role in supporting connectivity and its
associated benefits. A number of principles for reforming sector-specific taxation and fees could be considered
by governments in Sub-Saharan Africa, in order to align mobile taxation with that applied to other sectors and
with the best practices recommended by international organisations such as the World Bank and the IMF for
implementing effective taxation while minimising distortions. In addition, in order to reflect local conditions and
market dynamics, it is important that when considering fiscal reform on the sector, governments, policymakers
and regulators conduct a detailed assessment of the potential implications of tax policy changes.
REDUCE SECTOR-SPECIFIC TAXES AND FEES REDUCE COMPLEXITY AND UNCERTAINTY

OF TAXES AND FEES ON THE MOBILE
Those taxes and fees that are charged exclusively to SECTOR
the sector over and above general taxation may create
economic distortions, potentially affecting service Uncertainty over future taxation reduces investment
prices and investment levels. Reducing these sector- as the risk of future tax rises is priced into investment
specific taxes can lead to increases in penetration and decisions. In addition, numerous sector-specific fees,
usage. By extending the user and tax base, reductions often levied on different tax bases, raise compliance
in taxation could have a neutral or positive impact on costs for mobile operators. Governments should
government revenues in the medium to long term. In seek to limit unpredictable tax and fee changes and
the DRC for example it is estimated that eliminating streamline how tax and fees are levied.
the 10% tax on mobile services can lead to an
additional 3.2 million mobile connections, $970 million SUPPORT EFFECTIVE PRICING OF
in GDP and $28 million in tax revenues in 2020 relative SPECTRUM TO FACILITATE BETTER QUALITY
to a base case with no changes. 38 Phased reductions AND MORE AFFORDABLE SERVICES
of sector-specific taxes and fees can represent an
effective way for governments to signal their support The spectrum award approach needs to balance
to the connectivity agenda, to benefit from economic the relationship between ex-ante and ex-post fees
growth resulting from the reductions, and to limit in a transparent way to ensure operators do not pay
short-term fiscal costs. twice for access to the same resource, as this may
disincentivise investment. By adopting a long‑term
REMOVE CONSUMER TAXES THAT TARGET perspective, setting modest reserve prices and
ACCESS TO MOBILE SERVICES prioritising spectrum allocation, governments and
regulators can support operators to deliver high‑quality
Luxury taxes on handsets, SIM cards and other and affordable mobile services to consumers.
activation/connection charges create a direct
barrier for consumers to connect and access mobile REDUCE OR REMOVE IMPORT DUTIES
broadband, especially in developing markets and for
the poorest sectors of the population by reducing Applying targeted or temporary tax reductions
the ability of the unconnected to access mobile or eliminating import duties for mobile network
services. To enable more users to gain access to equipment and other local taxes levied directly on
the mobile market, governments should choose to mobile sites would deliver an immediate cost relief to
address the affordability barrier represented by taxes operators and has the potential to increase network
on devices and connections. Removing these taxes investment. Removing or temporarily exempting
has the potential to increase the taxable base for the import excises and duties on mobile handsets and
government. smartphones would reduce the affordability barrier for
the poorest consumers and extend connectivity.
38 Digital inclusion and mobile sector taxation in the Democratic Republic of the Congo, Deloitte/GSMA, 2015
36
IMPLEMENT SUPPORTIVE TAXATION AVOID EXCESSIVE REGULATORY FEES

FOR EMERGING SERVICES SUCH AS AND TAXES ON REVENUES
MOBILE MONEY
Regulatory fees that exceed the true cost of spectrum
Emerging services such as mobile data, mobile and licence management could be reconsidered. In
money and Internet of Things (IoT) applications can particular, fees on revenues rather than profits may
help accelerate productivity and financial inclusion discourage investment and innovation, as these fees
throughout the economy. Disproportionate taxation of require the same payment from an operator regardless
services such as mobile money puts a wide range of of whether it retains its profit or uses it to invest in
positive externalities at risk. Implementing supportive new infrastructure and services. USF contributions
taxation can play a key role in the development of represent a direct cost for mobile operators, while
these services. the benefits of these funds remain less clear-cut as
some funds do not disburse significant amounts of the
REMOVE TAXES ON INTERNATIONAL contributions paid by operators. 39
INCOMING CALLS
Surtaxes on international incoming calls are

particularly detrimental to businesses and consumers
in Sub-Saharan Africa. Removing these taxes can
ease barriers to regional and international trade by
lowering the cost of receiving international calls, and
can improve affordability, enabling more consumers to
realise the benefits of mobile services.
39 Universal Service Fund Study, GSMA, 2013
37
Methodology
Appendix 1 Data sources
For the purposes of the study we collected data on handset and mobile service bundle prices, tax rates, tax
payments, macroeconomic data and mobile market indicators. Table 7 summarises the specific variables used.
Table 7
Summary of variables and sources
Area Variable Time Source
Prices Tariff price for Basic basket 2017 Q1 Tarifica
Tariff price for Low basket 2017 Q1 Tarifica
Tariff price for Medium basket 2017 Q1 Tarifica
Tariff price for High basket 2017 Q1 Tarifica
Device price 2017 Q1 Tarifica
Tax rates Mobile operators

General tax rates 2016
and public sources
Mobile operators
Sector-specific tax rates 2016
and public sources
Tax payments Tax payments Deloitte and GSMA analysis

2014–2015
(general, sector-specific) of mobile operator data
Macroeconomic IMF World Economic

Nominal GDP 2016
Outlook40
Population 2016 World Bank
Income distribution 2003–2013 World Bank41
Exchange rates 2014–2016 Oanda42
Tax revenue as a proportion IMF Government Finance

2014
of GDP Statistics43
Mobile market Mobile operator revenue 2014–2016 GSMA Intelligence
Market share by operator 2014–2015 GSMA Intelligence
40 See IMF WEO Database imf.org/external/pubs/ft/weo/2017/01/weodata/index.aspx

41 See World Bank data.worldbank.org/indicator/SI.DST.FRST.20
42 See Oanda oanda.com
43 See IMF Government Finance Statistics data.imf.org/GFS
38
A1.1 Prices
Pricing data for devices and tariffs was provided by Tarifica. Retail prices were captured as of the first quarter of
2017, including all relevant taxes.
Based on GSMA Intelligence analysis, four baskets were defined with different levels of usage allowance, type of
contract and technology. The following aspects were taken into account:
• Historic average trends in data consumption • A selection of allowances currently offered by

across countries, sourced from GSMA Intelligence, operators in developed and emerging markets,
Ofcom,44 Tefficient45 and Opera.46 Data provided by Tarifica.
requirements going forward (which are likely to
• Baskets used in existing benchmarking studies
increase) were also taken into account. The analysis
from OECD,47 Ofcom,48 EC49 and Tarifica.50 These
of average values was carried out taking into
represent basket designs often used in the
account the skewness introduced by intensive users
economics literature analysing pricing in the mobile
of mobile services.
industry.51
The baskets resulting from this analysis are described in Table 8 below:
Table 8
Usage basket profiles
Basic Low Medium High
Usage 100 MB data 500 MB data 250 voice minutes 5000 MB data
allowance
100 SMS
1000 MB data
Tariff Prepaid Prepaid or postpaid Prepaid or postpaid Prepaid or postpaid
Technology 2G, 3G or 4G 3G or 4G 3G or 4G 3G or 4G
Source: GSMA Intelligence and Tarifica
44 The Communications Market Report, Ofcom, 2016 ofcom.org.uk/_ _data/assets/pdf_file/0026/95642/ICMR-Full.pdf

45 Unlimited pushes data usage to new heights, Tefficient, 2016 media.tefficient.com/2016/12/tefficient-industry-analysis-5-2016-mobile-data-usage-and-pricing-1H-2016-ver-2.pdf
46 State of the Mobile Web Africa 2016, Opera, 2016 blogs.opera.com/news/wp-content/uploads/sites/2/2016/11/SMWAfrica-Opera-report-2016-01-WEB-1.pdf
47 Digital Economy Outlook 2015, OECD, 2015 oecd.org/sti/oecd-digital-economy-outlook-2015-9789264232440-en.htm
48 The Communications Market Report, Ofcom, 2016 ofcom.org.uk/_ _data/assets/pdf_file/0026/95642/ICMR-Full.pdf
49 Mobile Broadband Prices in Europe 2016, European Commission, 2016 ec.europa.eu/digital-single-market/en/news/mobile-broadband-prices-europe-2016
50 See Tarifica tarifica.com
51 For instance, OECD and Tarifica’s benchmarking has been extensively used in studies such as: Evaluating market consolidation in mobile communications, CERRE, 2015;
Ex-post analysis of two mergers: T-Mobile/tele.ring in Austria and T-Mobile/Orange in the Netherlands, DG Comp 2015; The impact of competition on the price of wireless
communications services, Hogunbonon, G.V, 2015; Supersonic: European telecoms mergers will boost capex, driving prices lower and speeds higher, HSBC Global Research, 2015
39
To capture all costs that consumers face when Mobile tariffs for each country were measured by
consuming mobile services (i.e., handset price, the cheapest available plan for each basket across
activation and connection fees and usage price), all mobile operators in the market. The plans and
Tarifica collected two variables for each country: prices available for each market were obtained
the retail price of a device and the tariff price, which from the websites of mobile operators. Tariffs from
included activation and connection fees as well as the mobile virtual network operators were not taken into
price of the service. account.54 A number of restrictions were applied to
ensure prices are representative of regular usage and
Device prices were obtained from mobile operators’ consumption patterns:
websites for the cheapest handset available in
the market with internet-browsing capability – a • Postpaid plans that required a commitment of more
smartphone52 or a feature phone.53 Given that the than 24 months were excluded.
performance for basic internet mobile applications
• Prepaid plans lasting less than one month were
(such as basic video or social networking) is only
included; where this applied, usage allowance and
functional with 3G and 4G, this analysis excluded
prices were scaled up to one month.
devices with 2G and WAP connectivity. Device prices
from retailers other than mobile operators were • When there are promotional offers, only those that
analysed for the countries where mobile operators did appear to be permanent were taken into account.
not offer handsets, which means that in some markets
• Plans targeted or restricted to certain profiles (e.g.,
there may be cheaper devices available.
youth, student, senior) were not included.
A1.2 Tax rates

Tax rates were sourced from mobile operators and the following public sources:
• VAT rates were obtained from PwC Tax • Custom duties on handsets were collected from
Summaries,55 KPMG56 and OECD’s Tax Database.57 the World Trade Organisation (WTO) website.
These refer to the Harmonised System HS code
• Sector-specific consumer tax rates and fees were
851712: ‘Telephones for cellular networks mobile
sourced from PwC Tax Summaries, IBFD58 and from
telephones or for other wireless networks’.
desktop research (e.g. government budget laws,
mainstream media). • Previous Deloitte and GSMA global59 and country
reports.60
A1.3 Tax payments

Tax payments are based on Deloitte and GSMA’s analysis of data sourced from mobile operators for 2014
and 2015.61 Total tax and fee payments applicable to the mobile sector are defined as total recurring tax and
regulatory fee payments. Spectrum taxes and fees include recurring spectrum and licence fees but exclude one-
off payments.
52 A smartphone is a device that has an open operating platform (where new applications can be developed and installed by the user).
53 A feature phone is a device with a closed platform, where non-native applications can be installed.
54 This could mean that in some markets cheaper alternatives could be available.
55 PwC Tax Summaries, 2016 pwc.com/gx/en/services/tax/worldwide-tax-summaries.html
56 Indirect tax rates studies, KPMG, 2017 home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/indirect-tax-rates-table.html
57 OECD Tax Database oecd.org/tax/tax-policy/tax-database.htm
58 IBFD Database ibfd.org
59 Digital inclusion and mobile sector taxation 2016, GSMA and Deloitte, 2016; Digital inclusion and mobile sector taxation 2015, GSMA and Deloitte, 2015; Global Mobile Tax
Review 2011, GSMA and Deloitte, 2011.
60 Digital inclusion and mobile sector taxation in Ghana, GSMA and Deloitte, 2016; Digital inclusion and mobile sector taxation in the Democratic Republic of the Congo, GSMA and
Deloitte, 2015; Digital inclusion and mobile sector taxation in Nigeria, GSMA and Deloitte, 2015; Digital inclusion and mobile sector taxation in Tanzania, GSMA and Deloitte,
2015; Digital inclusion and mobile sector taxation in Chad, GSMA and Deloitte, 2016; Digital inclusion and mobile sector taxation in Niger, GSMA and Deloitte, 2017.
61 Tax payments for 2014 were retrieved from Digital inclusion and mobile sector taxation 2016, GSMA and Deloitte, 2016 gsma.com/mobilefordevelopment/wp-content/
uploads/2016/07/Digital-Inclusion-and-Mobile-Sector-Taxation-2016.pdf. Tax payments for 2015 follow the approach in Mobile Taxation Survey, A methodological note for
GSMA and Deloitte, 2017 gsma.com/mobilefordevelopment/wp-content/uploads/2017/06/Mobile-taxation-survey-methodology-note.pdf
40
Appendix 2
Calculation of the
total cost of mobile
ownership (TCMO) and
its tax component
A2.1 Calculation of TCMO
The total cost to a consumer of owning and using a mobile phone can be defined by using the concept of TCMO.
The TCMO is calculated in monthly terms, on the basis of three building blocks:
• The handset price, i.e. cost of the mobile device To account for the fact that the handset, activation
required for the use of mobile services. This and connection and usage prices are different across
represents a one-off cost that can be spread over consumption profiles, the TCMO was calculated for
the lifecycle of the device (after which it is assumed two baskets for each country – the Basic and Low
to be replaced). Handset prices were converted baskets, as defined in Table 8, taking into account
to a monthly price based on a handset lifecycle the relevance of these profiles for lower income
assumption of three years for developing markets quintiles. Since these two baskets have different usage
and two years for developed markets, in order to characteristics (in usage allowance, type of contract
take into account differences in usage patterns, and technology), they can have different prices in the
disposable income and willingness to pay.62 usage block of the TCMO as well as in the activation
and connection component. As far as the device
• The activation and connection price or any other
component is concerned, the same device was used
charges incurred to connect to the MNO’s network.
for both baskets, since it was assumed these two
For prepaid customers this usually consists of
profiles use it with similar purposes and services63 and
an initial charge for activating the SIM card. For
hence require a similar technology.
postpaid customers there may be additional
upfront costs, such as an initial charge for activating
the number. Activation and connection prices were
converted into monthly prices assuming they follow
the lifetime of the device.
• The price related to use and comprising voice, SMS
and data charges, which can be prepaid or postpaid.
This price is already expressed in monthly terms.
62 This assumption is based on Global Mobile Tax Review, GSMA and Deloitte, 2011 gsma.com/publicpolicy/wp-content/uploads/2012/03/gsmaglobaltaxreviewnovember2011.pdf
63 This assumption is based on the fact that the data allowance is not substantially different, which should to a certain extent drive similar usage patterns.
41
The calculation of the TCMO for basket b of country i is as follows.
Handset pricei Activation and connection pricebi

TCMObi = + + Usage pricebi
Handset lifecyclei Handset lifecyclei
In order to account for income differences across 2016. Since data collection of prices was carried out
countries, the TCMO was expressed as a proportion of throughout the first quarter of 2017, for countries
income per capita across different income quintiles,64 experiencing substantial inflation, adjustments have
using the most recent information on income been made to allow for better estimates of 2016
distribution available from the World Bank.65 The mobile service prices. Prices were captured in local
TCMO measure presented in this report was estimated currencies and converted to US dollars using exchange
for 2016 – i.e. using pricing and income data as of rates from Oanda in 2017.
A2.2 Estimation of tax as a proportion of TCMO

The price of the three building blocks presented Note that this study only covers consumer taxes.
above can be further broken down into the price Any potential pass-through of taxes levied on the
before tax (which covers costs and profits) and taxes. operator to consumers were not considered due to
The latter can vary between general consumer taxes the complexities involved in modelling the latter.67
and sector‑specific taxes. Figure 23 presents the tax Therefore, there is likely to be an underestimation of
rates that have been considered for this analysis.66 tax as a proportion of TCMO presented here.
Figure 23
Calculation of the proportion of tax in TCMO
Handset price before tax
Handset price VAT*

General taxes
Taxes Custom duties*
Sector-specific taxes Luxury taxes**
Activation Activation and connection price before tax

Tax as a
TCMO
and General taxes VAT* proportion

connection of TCMO
Taxes Activation and
price Sector-specific taxes
connection fees**
Usage price before tax
Usage price General taxes VAT*

Taxes
Sector-specific taxes Excise duties on usage**
* Ad valorem tax rates **Tax rates can either be ad valorem or fixed fees
64 This results from estimating the share of nominal GDP across different income deciles and then distribute this between the number of individuals in each decile.
65 The most recent year being 2013 or from previous years up to 2003 for some countries where 2013 data was not available.
66 Due to lack of data, the analysis of tax rates excludes rates on international traffic (hence, we assume no international calls) and additional tax rates related to importing devices
such as processing fees.
67 Estimating the percentage of an operator tax or fee that is reflected in the retail price of mobile services depends on the type of tax, the prevailing market conditions of
competition and the price elasticity of demand across different groups of consumers, among other factors.
42
Taxes in the TCMO were calculated by applying tax rates to the appropriate tax base.
• In the case of ad valorem taxes (VAT and excise • In the case of fixed amount taxes, a number
duties), the relevant tax base is the retail price of of assumptions were made. For activation and
the relevant TCMO building block that was used. connection fees applied on the value of the SIM
card, it was assumed that the average retail price
• In the case of custom duties, the selected tax base
of the SIM is $1.2.69 For general fixed fees, the tax
was the retail price of the device building block in
payments were converted to a monthly level.70
the TCMO. A more accurate calculation of custom
In rare cases where fixed are applied per day of
duties would have involved using the price of goods
usage, it was assumed that the average consumer
at the import level as the tax base since retail prices
uses mobile services for 20 days in a month.71
incorporate a number of additional factors (such as
transport costs or retailer costs and margins). No
data is, however, available on import prices hence
our approach to use retail prices as a close proxy.68
68 Note that the difference between retail and import prices is likely to be country-specific (i.e. due to differences in transport and logistic costs and/or different market structures
at the retail level, for instance).
69 This is an illustrative assumption, based on $1 wholesale price plus illustrative costs and margins that add to retail. Wholesale prices retrieved from www.budgetelectronics.cat
70 Yearly fees were brought to monthly level by dividing by 12. One-off fees were brought to monthly level by dividing by the lifecycle of the device (consistent with the approach
taken with regards to fixed fees when measuring the TCMO as such).
71 This is an illustrative assumption.
43
Appendix 3
Analysis of mobile
tax payments
Total tax and fee payments were divided into the two For the analysis that looks at the relative contribution
categories of standard taxation and sector-specific of the mobile industry to taxes raised by governments,
taxes and fees on the basis of information provided by mobile sector tax payments presented above were
mobile operators, following the breakdown below: used against the total tax revenue as sourced by
IMF for 2014. The IMF provides total tax revenues as
• General taxation included sales taxes, such as a proportion of GDP, which was used together with
VAT or GST, and import duties on devices, as well nominal GDP data. The result of this analysis was then
as corporate taxes, import duties on network compared to the broader economic contribution of
equipment and general revenue-based taxes. mobile operators to the economy, calculating the share
of mobile operators’ revenue (sourced from GSMA
• Sector-specific taxes applying to consumers
Intelligence) in GDP.
included excise duties on usage, luxury taxes on
handsets and connection and activation fees.
Where tax payments were presented as a proportion
For operators, this included regulatory taxes and
of total mobile market revenue, data from GSMA
fees and other revenue-based sector-specific
Intelligence was used for 2014 and 2015, depending on
taxes. For those countries where the mobile
the year of the tax payments data.
sector is subject to special corporate tax or VAT
rates, the differential between standard rates and
sector‑specific rates was not been classified as
sector-specific due to data limitations.
Where operator-level data was not complete to derive
an estimate of total payments for the country, a market
uplift has been applied using mobile operators’ market
share data from GSMA Intelligence. Local currency units
were converted into US dollars using average exchange
rates for 2014 and 2015 as sourced from Oanda.
44
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Taxing mobile connectivity

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Our team of analysts and experts produce regular

1 The mobile industry in Sub-Saharan Africa 5

2 Taxation on the mobile industry in Sub-Saharan Africa 9

3 Mobile sector taxation and its impact on affordability 22

4 Reforming taxation to enable connectivity and  33

Taxation levied on mobile, especially over and above standard rates,

Many cannot afford to access mobile services, especially those at the

Tax deteriorates the business environment and reduces operators’

Rebalancing sector-specific taxes and regulatory fees can promote

Reduce complexity and uncertainty of

Reduce or remove import duties Remove taxes on international incoming calls

Mobile internet unique subscriber penetration

Source: GSMA Intelligence

1 Source for unique subscriber metrics: GSMA Intelligence

1.2 The mobile industry makes a significant

1.3  ow Sub-Saharan Africa can reach its full

Unique subscriber and mobile internet unique subscriber penetration

Mobile internet unique Unique subscriber

8 Source: GSMA Intelligence

9 Source: GSMA Intelligence

Mobile consumer and operator taxes and fees

TAXES ON CONSUMERS OPERATOR TAXES AND FEES

Tax base Tax type Tax base Tax type

Sales tax Profits Corporation tax

Sector-specific taxes Turnover tax

Sales tax One-off licence fee

2.2 Sector-specific taxes are not aligned with

Best-practice principles of taxation

Total tax and fee payments as a proportion of mobile sector revenues

Mobile Connectivity Index score

Sector-specific Mobile Connectivity

Revenue share of sector-specific versus total tax and fees in 2015

Mobile sector tax and fee payments in government tax revenue

Tax and fee payments breakdown in 2015 in select countries in

*=2014 Source: GSMA Intelligence

2.3 Consumer taxes and fees

TAXES ON HANDSETS AND OTHER DEVICES

12 See Appendix for details on sources of consumer tax rates.

Combined handset tax rates in 2016

ACTIVATION AND CONNECTION CHARGES

Countries in Sub-Saharan Africa that levy activation taxes on mobile

Country Activation taxes and fees

Chad SIM tax: XAF1,000 ($1.7) and 1% additional VAT which is

Gabon SIM tax: 18% excise charge

Ghana Numbering fee: up to $0.50*

Niger SIM tax: XOF250 ($0.4)

Nigeria Numbering fee: NGN10–20* ($0.05–0.10)

TAXES ON MOBILE USAGE

Combined usage tax rates in 2016

Source: GSMA Intelligence

SURTAX ON INTERNATIONAL INCOMING TRAFFIC

Examples of SIIT charges in select Sub-Saharan African countries

Chad XAF50 ($0.08) per minute

DRC $0.08 per minute

Ghana GHS0.13 ($0.03) per minute

Guinea GNF571 ($0.07) per minute

Niger XOF88 ($0.15) per minute

1 The mobile industry in Sub-Saharan Africa 5

2 Taxation on the mobile industry in Sub-Saharan Africa 9

3 Mobile sector taxation and its impact on affordability 22

4 Reforming taxation to enable connectivity and 33

1 Source for unique subscriber metrics: GSMA Intelligence

1.2 The mobile industry makes a significant

1.3 ow Sub-Saharan Africa can reach its full

2.2 Sector-specific taxes are not aligned with

of turnover, sector-specific tax 18%16%

ANGOLA 7%10% 25%10%

5% 10% 0.5%1.5% 9%0% 10% 0%

3.2 Uncertain and complex taxation regimes

CASE STUDY ENABLING TAX PAYMENTS THROUGH MOBILE MONEY IN TANZANIA

CASE STUDY VAT EXEMPTIONS ON HANDSETS IN KENYA CONTRIBUTE TO GROWTH

4.2 Areas for reform to support mobile sector