Africans fear new trend of hiking taxes on calls, data

The brisk business Julius Kirya did from his cash transfer kiosk in the Ugandan capital has slowed right down with a new tax on mobile money.

Many of his customers have returned to sending banknotes by hand, in some cases via motorbike taxi.

How to tax digital revenues, from fintech to social media, is a puzzle authorities around the world are working on.

A solution catching on in Africa – levies on usage – has obvious appeal to indebted governments but a big impact on people like Kirya, who saw the tech revolution as a way out of poverty.

“I had a dream of steadily growing to middle income status,” he said.

He was making three times the average salary before the tax, was introduced in July. Now his income has slid to half that. “With this tax I have no chance,” he said.

It is not just Kirya and his customers who are losing out.

Mobile communications have revolutionised life in Africa where telecom company reports show calls and texts are giving way to data services like Facebook-owned WhatsApp, Skype, Viber and WeChat owned by China’s Tencent.

The telecom companies say taxes on mobile payments introduced by a string of countries hurt their revenues and threaten much-needed investment in infrastructure.

Levies on social media usage brought in by Uganda and Benin and a proposed tax on internet calls in Zambia have taken the shine off a fast-growing market and have all sparked protests.

Officials say the taxes are needed to preserve state revenues as technologies evolve.

The International Monetary Fund (IMF), which has long pressed African states to improve tax collection, urges caution.

“You want to make sure you don’t introduce taxes that are stifling innovation and curtailing activity in the sector,” Abebe Selassie, the IMF’s top official for Africa, told Reuters this month. “So striking that balance will be important.”

The communications sector is evolving fast in Africa, where the convenience and lower communication costs of “over-the-top” (OTT) services via the internet have particular appeal.

Data revenues in most African markets are increasing at a much faster rate than SMS and voice revenues are declining, a Reuters analysis of telecom company finances showed.

Safaricom reported its customer base jumped 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 saw revenues from outgoing voice calls 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.

Mobile operators are expanding 4G networks, trimming data costs and nurturing financial services offerings to drive future revenues.

In theory, this should also protect countries’ tax take, but many African governments supplement revenue or profit taxes with separate levies on voice airtime, SMS and mobile money.

Amid fears the first two services are tailing off, authorities are bringing in or increasing taxes on mobile money and introducing them for social media to make up the shortfall.

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.

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.

Amnesty International and local opposition parties say the OTT tax is a veiled attempt to stifle criticism of President Yoweri Museveni, who has been in power for over three decades. Opposition activists have used apps to organise protests.

Officials say the taxes are aimed at raising revenue, not suppressing dissent, and reject the telecom firms’ complaints.

Finance Ministry spokesman Jim Mugunga said they had helped the revenue authority exceed its third quarter targets.

“There’s no proof that these taxes are hurting business,” he said. “No one has given us empirical evidence … That’s a narrative by telecom companies. I don’t accept it.”

Godfrey Mutabazi, executive director of the Uganda Communications Commission, echoed a common complaint around the world that social media companies keep local tax authorities at arms’ length.

“The traditional voice technology that we have lived with over the past 20 years is dying,” he told Reuters.

“These big technology firms are not registered here … so the only way the government can get revenue from them is to put a tax on OTT usage.”