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© 2012 Deloitte LLP Private and confidential
Mobile taxation in Africa and the Kenyan case study
February 2012Davide Strusani, Deloitte LLP
© 2012 Deloitte LLP Private and confidential
Mobile telephony is often subject to discriminatory taxation in developing countries compared to other services
• The GSMA has recently commissioned Deloitte to undertake a global study on consumer taxation on mobile services in 111 countries worldwide
• We present and discuss here the results of the study in relation to Africa
• We also discuss the findings of a study that measures the relationship between mobile telephony and economic growth
• Finally, we show the positive impact of reductions in mobile telephony taxation in Kenya
2
© 2012 Deloitte LLP Private and confidential
In our study, tax is measured as a proportion of mo bile service costs
• Mobile service costs are expressed as Total Cost of Mobile Ownership (TCMO) and the Total Cost of Mobile Usage (TCMU)
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TCMO
Handset Connection Rental Calls SMS
Handset Cost Tax Connection Cost
Tax Rental Cost Tax Call Usage Price
Tax SMS Usage Price
Tax
VAT( $)
Customs Duty
VAT( $) VAT( $) VAT( $)
Telecoms Specific Tax
Telecoms Specific Tax
Telecoms Specific Tax
Telecoms Specific Tax
Telecoms Specific Tax
VAT( $)
Total TaxesVAT ($), Customs Duty, Telecoms Specific Tax
Total Taxes as a proportion of service costs
Service cost without tax
© 2012 Deloitte LLP Private and confidential
Gabon, DRC and Madagascar have the highest tax as p roportion of TCMO in Africa
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37.20%
29.14%
28.33%
28.17%
27.80%
26.23%
24.47%
23.82%
23.29%
22.01%
21.21%
20.53%
20.37%
20.18%
18.90%
18.74%
18.59%
18.41%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Gabon
Dem Rep. Congo
Madagascar
Uganda
Tanzania
Zambia
Rwanda
Sierra Leone
Niger
Ghana
Senegal
Kenya
Cameroon
Congo B
Cote d'Ivoire
Guinea
Chad
Global Average
Source: Deloitte/GSMA, Global Mobile Tax Review
Tax as a proportion of TCMO
© 2012 Deloitte LLP Private and confidential
Taxes on mobile usage, or ‘airtime taxes’, have als o increased significantly in the last four years in Africa
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18%
12%
10%
10%
10%
10%
10%
7%
6%
5%
5%
3%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Gabon
Uganda
Dem Rep. Congo
Kenya
Sierra Leone
Tanzania
Zambia
Madagascar
Ghana
Rwanda
Senegal
Niger
18%
12%
10%
10%
10%
10%
10%
7%
6%
5%
5%
3%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Gabon
Uganda
Dem Rep. Congo
Kenya
Sierra Leone
Tanzania
Zambia
Madagascar
Ghana
Rwanda
Senegal
Niger
Source: Deloitte/GSMA, Global Mobile Tax Review
© 2012 Deloitte LLP Private and confidential
Tax as a share of handset costs represents over two thirds of the costs of a handset in Gabon and Niger
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80%66%
49%49%
48%48%
46%45%
39%38%
35%31%
30%29%
28%27%27%
25%23%
0% 10% 20% 30% 40% 50% 60% 70% 80%
GabonNiger
CameroonCongo BRwandaGuinea
MadagascarDem Rep. Congo
Cote d'IvoireChad
GhanaZambia
Gambia TheRegional Average
TanzaniaEthiopiaMalawi
MozambiqueGlobal Average
Source: Deloitte/GSMA, Global Mobile Tax Review
Tax as a proportion of handset costs
© 2012 Deloitte LLP Private and confidential
20 African countries still impose custom duties on handsets
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47%30%30%30%30%30%
27%25%
21%20%20%
12%10%10%10%10%
9%8%
5%2%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
NigerCameroon
Congo BGabonGuinea
RwandaDem Rep. Congo
MadagascarCote d'IvoireGambia The
GhanaEthiopia
ChadMalawi
TanzaniaZambiaLesotho
MozambiqueNigeriaKenya
Source: Deloitte/GSMA, Global Mobile Tax Review
Custom duties
© 2012 Deloitte LLP Private and confidential
18%17%
31%
19% 19%
29%
0%
5%
10%
15%
20%
25%
30%
Tax/TCMO Tax/TCMU Tax/Handsets
2007
2011
As a result, taxation as a proportion of mobile cos ts has increased in the last four years in Africa...
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18%17%
31%
19% 19%
29%
0%
5%
10%
15%
20%
25%
30%
Tax/TCMO Tax/TCMU Tax/Handsets
2007
2011
18%17%
31%
19% 19%
29%
0%
5%
10%
15%
20%
25%
30%
Tax/TCMO Tax/TCMU Tax/Handsets
2007
2011
Source: Deloitte/GSMA, Global Mobile Tax Review
© 2012 Deloitte LLP Private and confidential
19.32%
17.17%
14.65%
12.78%
19.06%
16.91%
13.94%
12.77%
29%
27%
21%
17%
0% 5% 10% 15% 20% 25% 30%
Africa
Latin America
ME & Maghreb
Asia Pacific
Tax as a proportion of TCMOTax as a proportion of TCMUTax as a proportion of handset price
19.32%
17.17%
14.65%
12.78%
19.06%
16.91%
13.94%
12.77%
29%
27%
21%
17%
0% 5% 10% 15% 20% 25% 30%
Africa
Latin America
ME & Maghreb
Asia Pacific
Tax as a proportion of TCMOTax as a proportion of TCMUTax as a proportion of handset price
19.32%
17.17%
14.65%
12.78%
19.06%
16.91%
13.94%
12.77%
29%
27%
21%
17%
0% 5% 10% 15% 20% 25% 30%
Africa
Latin America
ME & Maghreb
Asia Pacific
Tax as a proportion of TCMOTax as a proportion of TCMUTax as a proportion of handset price
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60%
100%
95%
75%
Pen.
... and mobile taxation as a proportion of mobile c osts in Africa is higher than in other developing regions
Source: Deloitte/GSMA, Global Mobile Tax Review
© 2012 Deloitte LLP Private and confidential
Mobile taxes and unbalanced taxes on handsets const rain mobile penetration and economic activity
10 Source: Deloitte/GSMA, Global Mobile Tax Review
Reducing the imbalance on handset taxation
Increase in handset circulation and mobile penetration
Positive effect on GDP growth
Positive effect on government taxation receipts
© 2012 Deloitte LLP Private and confidential
A 10% increase in mobile penetration leads to signi ficant increases in growth of GDP per capita
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3.88
3.81
3.70
3.51
3.29
3.16
2.66
2.49
2.43
2.08
1.92
1.76
1.75
1.66
1.44
1.34
1.25
1.24
1.22
0 0.5 1 1.5 2 2.5 3 3.5 4
Sierra Leone
Zimbabwe
Liberia
Madagascar
Mozambique
Mali
Sudan
Guinea-Bissau
Zambia
Lesotho
Cameroon
Nigeria
Benin
Kenya
Ghana
Swaziland
Congo, Rep.
Cote d'Ivoire
Namibia
Source: Deloitte analysis, forthcoming
%
© 2012 Deloitte LLP Private and confidential
Kenya has successfully reduced mobile specific taxa tion
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• The Kenyan government recognised that handset price represented a barrier to the development of the sector
• In August 2009, the 16% VAT on mobile phone handsets was removed
2011
Source: Deloitte/GSMA, Global Mobile Tax Review
© 2012 Deloitte LLP Private and confidential
Lowering taxation has significantly increased hands et circulation...
13
0
50,000
100,000
150,000
200,000
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya
© 2012 Deloitte LLP Private and confidential
... and has contributed to increased mobile penetra tion above African average
14
40%
45%
50%
55%
60%
65%
70%
Q1 2009Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010Q3 2010Q4 2010Q1 2011Q2 2011
Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya
© 2012 Deloitte LLP Private and confidential
0.003
0.013
0.023
0.033
0.043
0.053
0.063
0.073
0.083
0.093
0.103
0
1
2
3
4
5
6
7
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011
Min
s,
bn
Tax reductions and healthy competition have also lo wered mobile prices and increased usage
15 Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya
© 2012 Deloitte LLP Private and confidential
In Kenya, consumers, businesses and government have benefitted from developments in the mobile sector
16 Source: Deloitte/GSMA, Mobile telephony and taxatio n in Kenya
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2008 2009 2010 2011
KH
S, m
Intangible benefits
Productivity increases
Supply side
© 2012 Deloitte LLP Private and confidential
Reducing taxation contributes to increase service p enetration and benefits economic activity
• In Africa, the contribution of mobile communications is particularly important to countries’ economic and social development, especially as a result of the limited fixed telecommunications infrastructure
• The Kenyan government has recognised the importance of removing taxes on access to mobile services
• The reduction in handset costs has led to substantial increases in handset circulation and mobile penetration
• This has resulted in notable benefits to consumers and to the economy
• Other African countries could consider the benefits that removing handset tax has provided for Kenya, and the positive benefits that increases in mobile penetration have on GDP growth rates
17
© 2012 Deloitte LLP Private and confidential
• http://www.gsma.com/tax-research-and-resources/
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Any questions?
Davide StrusaniAssistant Director, TMT Economic [email protected]
© 2012 Deloitte LLP Private and confidential
Member of
Deloitte Touche Tohmatsu
19
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