Upped taxes on telecoms to hurt economic growth

Upped taxes on telecoms to hurt economic growth

In his speech while unveiling the 2012/2013 budget proposals in the National Assembly last Thursday, the Minister for Finance and Economic Affairs, Dr William Mgimwa, listed airtime and abolition of tax exemption on importation of telecommunication towers, ending an income holiday for the highly active sector. Members of Parliament began debating the proposed 15.1tri/- expenditure yesterday.

Various observers say telecommunication services are among basic needs, which are vital for the country’s social and economic development just like roads, electricity, ports and water supply.  "Affordable and reliable telecommunication for the people is not a luxury, but an essential service and it creates jobs,” she said.

It is estimated that over 2,500 people are directly employed by telecommunication companies, while thousands and their families indirectly depend on the sector. These include agents for various services like money transfers, airtime voucher vendors and business people who sell handsets.

"Burdening the service with additional taxation will not give the country long term benefit, but is going to adversely affect investment in the sector," said Airtel Director for Corporate Communication, Ms Beatrice Singano over the weekend when contacted for comments. "It has been proved that for every 10 per cent increase in mobile penetration there is a 1 per cent growth of the gross domestic product (GDP) of a country," she points out. 

She said increased excise duty on airtime would greatly undermine purchasing power of many people, while abolition of tax exemption on sites, especially in rural areas might affect expansion plans. Airtel, Vodacom, Tigo and Zantel have all announced grand upgrading programmes in a bid to propel the country deeper into the digital world befitting Tanzanians of the 21st century. 

Industry officials announced last month that Tanzania's mobile phone subscribers rose 22 per cent to 25.6 million last year, helped by lower tariffs.  Communications is the fastest-growing sector in the country's economy, with eight players in the local mobile telecoms industry fighting for market share, forcing tariffs lower.

The Minister for Communication, Science and Technology, Professor Makame Mbarawa, said last month that phone tariffs were halved in Tanzania over the past 10 years due to increased competition.  "There are now eight licensed mobile phone service providers, with seven in operation. Apart from widening consumer choice, the increase in the number of service providers has led to a 50 per cent fall in mobile tariffs," the minister was quoted as saying.

Interconnection charges, the rate mobile phone operators charge each other for calls made across networks, fell to 7.16 US cents in January this year from 7.83 US cents in 2008, he said. A new interconnection rate due to be put in place from January 2013 will be lower, Prof Mbarawa said.

However, the decrease in interconnectivity charges, which should have trickled down to lower user tariffs, had been offset by a volatile local currency.  Mobile phone penetration in Tanzania stood at 47 per cent last year, according to the Tanzania Communication Regulatory Authority (TCRA) website. TCRA records also show that the number of internet users in Tanzania rose to 6 million by May this year from 5.3 million at the end of last year.

There are now fears that the growth rate could be affected by increased taxation. Ms Singano said that currently, 70 per cent of Airtel sites in rural Tanzania collects very minimal revenue levels. "The sites", she added, "are extremely costly to operate due to logistics and high cost of fuel. Therefore, the reduction or removal of tax exemption on importation of towers will greatly hamper an operator's ability to deliver rural coverage to such areas."

"That entire infrastructure is operated by private business without any government subsidies as is the case in other sectors," she claimed. She said telephone services are a necessity, so to impose taxes on such an undertaking is not appropriate. "Making that call is a critical part of doing business and everyday life for most people and specifically in rural Tanzania.  "Farmers, police and livestock keepers’ lives have been made easier by the use of phones," Ms Singano explained.

People are now conveniently using a mobile phone to access markets locally and abroad by visiting various websites. Agnes Sawio, a resident of Area D in Dodoma asked the government to review taxes on telecommunications companies to make calling rates affordable.

"Its a fact mobile phone companies have made life easier for the poor. Sending or receiving money has been made easier, thanks to mobile phone companies", she said. She said that the government should look for other sources of income, by widening the tax base.

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