Digital inclusion and mobile sector taxation in Tanzania FEBRUARY 2015 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN TANZANIA Important Notice from Deloitte This report (the “Report”) has been prepared by All copyright and other proprietary rights in the Deloitte LLP (“Deloitte”) for the GSMA on the basis Report remain the property of Deloitte LLP and of the scope and limitations set out below. any rights not expressly granted in these terms are reserved. The Report has been prepared solely for the purposes of assessing the economic impacts of mobile sector This Report and its contents do not constitute financial taxation in Tanzania by modelling the potential or other professional advice, and specific advice impacts that could be realised by a change in mobile should be sought about your specific circumstances. taxation under a set of agreed assumptions and In particular, the Report does not constitute a scenarios. 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Accordingly, no representation or warranty, express or implied, is given and no responsibility or liability is or will be accepted by or on behalf of Deloitte or by any of its partners, employees or agents or any other person as to the accuracy, completeness or correctness of the third party information contained in this document or any oral third party information made available and any such liability is expressly disclaimed. 2 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN TANZANIA CONTENTS IMPORTANT NOTICE FROM DELOITTE 2 EXECUTIVE SUMMARY 5 Mobile services are delivering significant benefits for Tanzania 5 High levels of mobile-specific taxation risk reducing growth in the mobile sector and Tanzania’s overall economic growth 6 Mobile-specific taxes are inefficient and limit digital inclusion and economic growth in Tanzania 8 Rebalancing mobile-specific taxes can promote digital inclusion, economic growth and fiscal stability 9 1 THE MOBILE SECTOR IN TANZANIA 13 1.1 Mobile services are delivering economic and social benefits to Tanzania 13 1.2 Mobile services are key to achieving the government’s ICT strategy 15 1.3 High taxes risk jeopardising mobile sector and economic growth in Tanzania 16 2 TAXATION ON THE MOBILE SECTOR IN TANZANIA 19 2.1 Consumer taxes create barriers to affordability 19 2.2 Taxes on operators reduce growth and investment in the mobile sector 23 2.3 Mobile taxes in Tanzania are inefficient and inequitable 27 3 CASE STUDIES: IMPACTS OF TAXATION ON MOBILE SERVICES 30 4 HOW CAN THE GOVERNMENT REBALANCE MOBILE TAXES TO ACHIEVE ECONOMIC GROWTH AND FISCAL STABILITY 34 Modelling the impact of changes to mobile taxation in Tanzania 35 4.1 Removing the excise tax on mobile data supports digital inclusion and a knowledge-based economy 37 4.2 Reducing the excise tax on all mobile services to 10% from 17% promotes digital inclusion and economic growth 38 4.3 Reintroducing the SIM tax would inhibit economic growth and ultimately reduce tax revenues 39 4.4 Removing the 10% tax on mobile money promotes financial inclusion 40 4.5 Eliminating the SIIT promotes Tanzanian businesses and regional trade 42 4.6 Eliminating the customs duty on network equipment incentivises investment 44 5 REDUCING TAXES ON MOBILE ENABLES THE GOVERNMENT TO ACHIEVE ITS ICT OBJECTIVES WHILE PROTECTING REVENUES 45 APPENDIX: MODELLING ALTERNATIVE TAX SCENARIOS: METHODOLOGY AND RESULTS 48 A.1 Estimation of the economic impact of a tax change 48 A.2 Results 52 3 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN TANZANIA The number of Tanzanians with access to mobile telephony has more than tripled since 2007 4 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN TANZANIA Executive Summary Mobile services are delivering significant benefits for Tanzania The number of Tanzanians with access to • Thanks to these effects, mobile mobile telephony has more than tripled since services are creating economic activity 2007, and now over 17 million Tanzanians, in Tanzania both through the direct 34% of the population, have a mobile phone. contribution of the mobile operators This increase in access is delivering wide- and the contribution of industries such ranging benefits in Tanzania: as network equipment providers and creators of applications and other • It promotes digital inclusion, enabling services. This increases GDP growth, millions more to benefit from the employment, tax revenues and long- exchange of information for business and term stability. social purposes, increased productivity, and improved access to education, • Mobile is the most cost-effective way healthcare and government services. of extending access to ICT in Tanzania. It is also fundamental to achieving the • Mobile money services have increased Tanzania Development Vision 2025 financial inclusion and access to banking objectives of improving ICT access in services. Tanzania is a world leader in this under-served areas and developing market, with 44% of adults having access the use of ICT in the provision of to banking through these services. government services. Mobile helps Mobile the government Mobile supports of Tanzania Mobile supports promotes long-term achieve its digital inclusion financial economic ICT and inclusion growth and wider social fiscal stability objectives However, barriers to the adoption of Mobile and 3G penetration mobile services remain. Mobile and internet 60% penetration increased rapidly in the decade 50% to 2011, but has slowed since then, and Tanzania risks being overtaken by other 40% Total mobile countries in the region. For much of the 30% 3G population, affordability remains a barrier 20% to access. Infrastructure investment is also 10% required to connect remote and rural areas; if these areas remain unconnected a digital 0% 2011 2012 2014 2013 2001 2010 2007 2002 2004 2003 2005 divide may emerge as some Tanzanians 2000 2006 2008 2009 remain excluded from the benefits of Source: GSMA Intelligence mobile services. Figure 1 5 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN TANZANIA High levels of mobile-specific taxation risk reducing mobile sector and economic growth in Tanzania Mobile is one of the most heavily taxed • In addition to VAT, mobile money services sectors in Tanzania, with operators subject are subject to an excise tax of 10% on to 10 different taxes, along with regulatory money transfer fees. fees and charges. Through these various taxes, operators pay USD 540 million in taxes As a result, taxes account for about 35% of annually, contributing over 11% of total tax the costs of mobile ownership in Tanzania; revenues in Tanzania. this is the second highest level in Africa, and almost double the global average. These Consumers are subject to taxes on devices, sector-specific taxes result in a tax burden subscription and usage. These taxes increase on mobile that is higher than on many the total cost of mobile ownership for products and services that are recognised Tanzania consumers and create barriers to to create negative social and environmental affordability: impacts: the tax burden on tobacco products is 32%, on alcohol 27%, and on petrol 35%. • In addition to VAT, mobile services such In contrast, mobile services create positive as calls, SMS and data are subject to an network effects by facilitating communication additional airtime excise that has increased and the flow of the information, increasing three times in the last three years, and now productivity throughout the economy. stands at 17%. Through this high tax burden, the government risks signalling that it aims to discourage • SIM cards are subject to VAT, and in 2013 consumption of mobile services. the Tanzanian government introduced a monthly tax of TZS 1000 on active SIM cards. Although this has since been removed, there are discussions of reinstating this tax. Taxation as a share of the total cost of mobile ownership in Africa 40% 35% 30% 25% 20% 15% 10% 5% 0% Chad Niger Kenya Ghana Gabon Angola Guinea Malawi Zambia Nigeria Gambia Uganda Lesotho Rwanda Senegal Ethiopia Congo B Congo Tanzania Mauritius Botswana Swaziland Zimbabwe Cameroon Madagascar South Africa Mozambique Sierra Leone Cote d'Ivoire Burkino Faso Global average Dem. Rep. Congo Regional average Source: GSMA/Deloitte Global Mobile Tax Review 2011; Data from operators in Tanzania 2014 Figure 2 6 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN TANZANIA Taxes account for about 35% of the costs of mobile ownership in Tanzania 7 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN TANZANIA Operators are also subject to a number and the ending of the exemption for some of sector-specific taxes, in addition to operators from customs duties on network corporate tax and a local service levy paid equipment.