Digital taxes stifle Africans

Kampala – 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 is a puzzle authorities globally 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.

He was making three times the average salary before the tax was introduced in July. Now his income has halved.

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 urges caution. “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, said 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” services via the internet have particular appeal. 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.

In January, Ivory Coast imposed a 0.5% tax on transfers via mobile money services. Kenya last month increased its tax on mobile money transfer fees, Benin introduced a tax on social media usage and Zambia has proposed a daily levy on making phone calls via the internet. In Uganda, there were two new taxes in July – one on mobile money transactions and on social media usage. – Reuters

Don’t introduce taxes that stifle innovation and curtail activity in the sector.

IMF