This archive report was first published on 16 September 2019.
By BITANGE NDEMO
As a professor of entrepreneurship at the University of Nairobi's School of Business, I have witnessed firsthand the impact of good fiscal policies on economic growth. Research initiatives have consistently shown that there is a strong relationship between good fiscal policies and economic growth.
Two new reports, WHEN THE PEOPLE TALK: Understanding the impact of taxation in the ICT sector and Understanding Women's Experiences of Social Media Taxation in East and Southern Africa, released by the Alliance for Affordable Internet (A4AI) in March and May 2019, have shed light on the negative impact of taxation on the ICT sector in Africa.
The reports conclude that several African countries have imposed taxes on over-the-top (OTT) platforms such as Facebook, Twitter, and others, leading to expensive and unaffordable mobile Internet. This has resulted in a decrease in the number of active mobile broadband users by at least 20 percent, as seen in the case of Benin.
The reports estimate that this situation would have led to a $40 million (Sh4 billion) loss in taxation and other revenues across the economy. High tax rates do not always lead to higher tax collection and in some cases, they may undermine economic growth.
One of the key takeaways from the study is that between 2016 and 2018, prior to the introduction of new taxes, network traffic and mobile Internet subscribers increased while prices declined. This suggests that some policy interventions, especially fiscal policies, have an adverse effect on revenue and by extension economic growth.
Disparities in gender incomes and social marginalization of women have led to Africa trailing other countries on Internet connectivity. The A4AI study on women has shown that the greatest barriers to getting people online in Africa is cost, with individuals paying an average of nine percent of monthly income for 1GB of data, compared with 5 percent globally.
The study has noted that these high costs are intensified in the East and Southern Africa where some governments have recently introduced consumer-facing Internet taxes targeting social media services, making it even less feasible for many individuals to connect. While we know that women are already less likely than men to use the Internet in these countries, there has been little study of whether, or how, these taxes have affected women's access.
It is always prudent to study the impact of policy interventions, especially in ICTs, to avoid widening the digital divide. Access and affordability of every citizen is a human right issue considering the fact that connectivity has given rise to new technological innovations such as new digital marketing of rural goods, online learning, and creation of local content — especially by and for women — that with time, new enterprises will blossom and contribute not just to economic development, but also to tax to the governments.
The case of Safaricom stands out as one of the leading companies in Africa that developed out of an enabling policy environment. Since inception 18 years ago, Safaricom has paid $6.74 billion (Sh674 billion) in taxes. Today, the company contributes 6.5 percent to the country's Gross Domestic Product (GDP).
These studies demonstrate why we need a new approach towards taxation of data and ICT services in Africa. We may lose the chance of creating another giant enterprise in Kenya and perhaps marginalize women further since they are less likely to enjoy expensive connectivity.
There is no doubt that higher taxes usually translate into higher prices for end users and as the studies have shown, undermine entrepreneurial expansion, which hurts economic growth.
