INSIGHTS

Internet Taxes Could Stiffle Africa’s Innovation

The internet, mobile phone penetration, and social media have led to the creation of many businesses over the last decade. Financial services driven by technology are the most popular in recent times with a proliferation of startups across Africa helping to make payments easier and enhance financial inclusion.

With how much business that goes on within this space every day, it was only a matter of time before governments thought of more untraditional ways of making some revenue from it. This unusual means has come in the guise of taxing the populace.

In January, Ivory Coast imposed a 0.5 per cent tax on transfers via mobile money services. Kenya last month increased its tax on mobile money transfer fees from 10 to 12 percent. Benin introduced a tax of 5 CFA francs ($0.01) per megabyte consumed on social media usage. And Zambia has proposed a daily levy on consumers who use the internet to make phone calls.

It’s a new trend but it’s already an unpopular one amongst the people. In Uganda, riot police repressed demonstrations against two new taxes implemented in July – one on mobile money transactions and another, a daily levy on social media usage, with apps and websites blocked until a user pays the fee.

The people aren’t the only ones complaining, telecom companies on the continent have been affected as well. MTN Uganda says the taxes had cut the company’s mobile transaction volumes in half.

A spokeswoman for Airtel Uganda, a subsidiary of India Bharti Airtel’s, said the new tax on transfers had led to a significant drop in the volume and value of transactions.

Data Revenues Are Rising the Fastest

Rapid mobile phone penetration has increased the demand for data services and in turn encouraged the proliferation of services such as money mobile money.

While data revenues have been on the increase, the more traditional SMS and voice revenues have dropped. Kenya’s Safaricom reported its customer base rose nearly 12 percent last year but voice revenues grew just 2.9 percent while SMS revenues shrank nearly 4 percent and data revenue rose 38.5 percent.

MTN shares a similar story. Revenues from outgoing voice calls have decline in a number of African countries in the first half of this year; SMS revenue fell across the group and in many markets by double digits year-on-year. But data revenues grew nearly 27 percent.

A Jab At The Economy

These taxes might seem to come as revenue generation for governments but it takes a larger toll on the economy.

Studies, including one from the World Bank, estimate that a 10 percent increase in mobile broadband penetration translates to a 0.8 to 1.5 percent increase in a country’s GDP growth.

Airtel Uganda has already decried a drop in the volume and value of transactions as a result of the new tax on transfers.

Mobile communications company GSMA reports that as of March 2017, mobile money services were operating in 39 sub-Saharan African countries with almost 280 million registered accounts. GSMA warns that that high or unpredictable levies may cost Africa about $31 billion in investment, especially in improving data coverage and services.

Beyond the public outcry and adverse economic implications, there’s also a fear that if these taxes continue, innovation will stand a huge risk.

You May Also Like To Read: Taxing The Internet Might Cost Africa’s Economy

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