The document discusses taxation issues related to the ICT sector. It outlines several objectives and interventions that could be taken by governments and institutions to optimize taxation for economic growth. These include designing tax regimes focused on economic growth over short-term revenue goals, analyzing the impact of increasing or decreasing excise duties, and shifting business models from fee-based to financial intermediation. Lowering ICT sector taxes is linked to increased GDP growth and jobs. Case studies from Kenya show how high ICT taxes can limit economic growth, and lowering excise duties may actually increase tax revenues in the long run. Mobile money also brings significant economic benefits by facilitating financial inclusion, but taxes on transaction values could quickly consume the money supply.

1. ICT SECTOR TAXES
UVA-UCT Conference
Designing tax systems in a cashless, platform-based and
technology driven African society
12 April 2023, Cape Town, South Africa

2. 2
RIS ICT sector taxation issues
Objective Institution Intervention Consequence
1
Economic
growth & job
creation
Government
Optimize tax regime for economic
growth and job creation instead of
short term revenue goals.
GDP growth and job creation translates into higher tax
revenues for the state in the medium term
2
Raising tax
revenue for
the state
Ministry of
Finance
Tax impact analysis of increasing or
decreasing excise duties to
determine impact on short term tax
revenue for state and also on GDP
growth and job creation
For several countries reducing or scrapping excise
duties will lead to more tax revenue not less.
For countries where this is not the case, broadband
penetration is generally low as well as the tax-to-GDP
ratio.
Broadband penetration and MM use to shift from state 1
to state 2.
3
Business
model
Banks,
MNOs,
others
Shift from fee based business
model to one of financial
intermediation
MNOs can reduce their debts through high MM volume.
Poor get access to micro loans at affordable interest
rates.
Formal banking will become more competitive and more
affordable.
4 Tax fairness
Ministry of
Finance
Local services are subject to VAT or
sales tax. To avoid competitive
distortion imported services such
as streaming services need to be
subject to a similar tax.
Withholding taxes placed on imported services
safeguard that local content producers are not
disadvantaged.
State benefits from the success of the streaming
services
5
Financial
Sector
Stability
Central Bank
Study impact of mobile money on:
Money circulation & inflation
Macro economic stability
Growth of formal banking
GDP growth and job creation
An optimized financial sector geared towards economic
growth and job creation.

3. 3
RIS
ECONOMIC GROWTH & JOB
CREATION VS RAISING TAX
REVENUES FOR THE STATE

4. 4
RIS The ICT sector supports all three platforms
needed for the digital economy
Fixed broadband
Mobile Broadband
Mobile Narrowband
Voice/SMS/USSD
Connectivity Platform
Passport
National ID
Drivers Licence
Mobile number
ID Platform
Credit Cards
Bank Accounts
Mobile Money
Payment Platform
Connectivity
Platform
ID
Platform
Payment Platform
Jobs
GDP growth
e-Services
Income
Income
Income
ICT taxes weaken connectivity and payment platforms and
disadvantage the poor

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RIS
Lowering ICT sector specific taxes leads to
economic growth and jobs
Sector-specific taxes increase the cost of broadband access and usage and thereby lower economic growth. Lower
economic growth also means lower tax revenue.
The ICT sector should pay its fair share of taxes but not more than other sectors of the economy.
Policymakers need to evaluate the level of the tax burden against the broader developmental objectives for their
country.
Telco Higher profitability leads to more
investment which in turn leads to
more broadband uptake and usage
due to wider coverage a better
quality of service
Lower prices lead to
higher broadband uptake
and usage
Economic growth, taxes and job creation

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RIS
ICT sector revenue is the tax base for several taxes
The revenue collected by telcos determines the VAT that the state receives. It also
determines the profit the telco is making and thus the amount of corporate income taxes
paid to the tax receiver.
The expected amount of future revenues will also impact employees salaries in the medium
term and thus the personal income tax revenues received by the state.
The regulator of the ICT sector also collects fees that are revenue-based. This includes
licence fees, universal access and service fund fees and, in some cases, spectrum fees.
An ICT sector excise duty directly reduces the net revenue a telco receives and lowers all
revenue-based taxes and fees.
An increase of 10% for an excise duty leads to an overall tax revenue increase of less than
10% as a result.

7. 7
RIS International studies measuring the impact of a 10%
increase in mobile broadband penetration on GDP growth
Authors Countries GDP growth
Czernich et al. 2009 OECD, 1996-2007 0.9-1.5%
Koutroumpis 2018 OECD, 2002-2016 0.82-1.40%
OECD 2011 EU countries, 1980-2009 1.1%
Qiang et al. 2009 Low income countries 1980-2006 1.4%
Scott 2012 Low income countries 1980-2011 1.35%
Endquist et al. 2018 Global 2000-2015 0.6–2.8 %
ITU 2020
World 1.5%
Africa 2.46%
Higher broadband penetration spurs economic growth and job creation.
There is a well established link between broadband penetration and GDP growth. The ITU (2013
& 2020) lists a range of studies that measure the macroeconomic effects of mobile broadband
penetration.
The effects vary for sets of countries and time periods and range from 0.8% to 2.46% of
additional GDP growth for an increase of 10% in mobile broadband penetration.
The additional GDP growth of a 10% higher broadband penetration is not a once-off benefit but
continues to benefit a country going forward.

8. 8
RIS
CASE STUDY KENYA

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RIS
Kenya’s ICT sector is heavily burdened with taxes
Taxes applicable to mobile consumers Value
Taxes
Value Added Tax (VAT) 16% on the value of mobile services inclusive of excise taxes
Corporate income tax 30%
The national social security
fund
Employer: 5% on monthly salary to a maximum of KES 200
Employee: 5% on monthly salary to a maximum of KES 200
Withholding taxes 20% on gross revenue for non-resident companies
Digital Service Tax
1.5% on gross revenues of a non-resident digital marketplace
(excluding advertising) - will probably be dropped in 2023
Excise duties
Mobile services 20% on mobile services revenues
Mobile money 12% on transaction fees
Customs
duties
SIM cards 25% on cost, insurance and freight (CIF) value
Railway development levy 2% on CIF value
Import declaration fee 3.5% on CIF value
Regulatory
fees
USF 0.5% of annual revenues
Annual operating license 0.4% of annual revenues
Once-off Spectrum fees Based on the auction price
Annual operating license # of transmitters / bandwidth / coverage
Sources: Finance Act of 2021; GSMA 2020, KRA, 2020; GSMA, 2020

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RIS
Kenya’s ICT Sector is already over taxed
Kenya has very high ICT sector-specific taxes, which limit the economic growth potential of the ICT sector.
The excise duty of 20% on airtime is one of the highest on the African continent (GSMA 2021).
The excise duty on mobile services made up 36% of total excise duty revenue collected and 2.2% of total
tax revenue.
The ICT sector contributed 2.4% to GDP in 2021 but excise duties alone made up 1.6% of total tax revenue.
Excise duty revenue KSh billion 2017/18 2018/19 2019/20 2020/21 2021/22
Mobile services
16.1 26.3 28.6 37.2 29.8
63% 9% 30% -20%
Total excise duty 83 93 117 103 131
Total tax revenue 1,410 1,544 1,456 1,518 1,832
Mobile excise duty as % of total excise duty 19.5% 28.2% 24.5% 36.2% 22.8%
Mobile excise duty as % of total tax revenue 1.1% 1.7% 2.0% 2.5% 1.6%
Source KNBS ECONOMIC SURVEY 2022
2015 2016 2017 2018 2019 2020 2021
2.4%
2.6%
2.5%
2.6%
2.6%
2.7%
2.7%
Kenya ICT sector direct contribution to GDP (KNBS Q3 2022)

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Lowering Excise duty to boost tax revenues
https://researchictsolutions.com/ict-evidence-portal-africa/ict_evidence_portal_africa.php

12. 12
RIS
MOBILE MONEY BUSINESS
MODELS AND TAXATION

13. 13
Size of informal sectors varies between 20% to 65% In Africa ( IMF, 2017)
Formal banking is fee based in Africa instead of financial intermediation (collecting money from
savers and channeling it to investors)
Financial intermediation: Revenue = interest rate margin (interest paid to savers - interest
received from lenders)
Fees: monthly fees, fees for e-transactions, balance statements, fees for withdrawing from
ATM, fees for depositing cash
As a result, formal bank account are expensive to maintain and there is little incentive to to keep
money in formal banking system.
Branch and ATM density is low in Africa and often non existent in rural areas
Formal banking sector is typically not geared to serve the informal sector. Automatic clearing
bureaus, deposit insurance, high HR cost and branch costs, etc.
It is difficult for banks to assess credit worthiness of informal entrepreneurs without collateral,
transaction histories and audited financial statements.
RIS
Why is mobile money so important for the
economic development in Africa?
Sources: https://www.imf.org/-/media/Files/Publications/WP/2017/wp17156.ashx&usg=AOvVaw0LVmOUH-qM_A2-XcLPsyPy,
https://data.worldbank.org/indicator/FB.ATM.TOTL.P5
Africa Eastern and Southern
Africa Western and Central
Euro area 62.7
6.8
8.9 ATMs per 100,000 adults in 2021 (Worldbank)

14. 14
RIS

15. 15
Easy to open a mobile money account. A bank account, in contrast, requires IDs, proof of
address, minimum balances
Mobile money is easy to use, all one needs is the receivers mobile number. Formal banking
requires filling our forms, and even online banking is complicated: Name, account number and
branch code must be right, but often more info is required or beneficiaries have to be preloaded.
Mobile money agent network is large compared to bank branches and ATMs.
Higher usefulness: Receiving and sending MM to users without a MM account.
RIS Mobile money complements formal banking
MM is partially a substitute for cash and partially a substitute for
bank accounts
Cash Mobile Money Bank account
Registration requirement none low very high
Ease of use high high low
Account maintenance fees NA none high
Local transaction fees none low high
National transaction fees NA same as local same as local
International transaction fees NA potentially expensive, complicated and takes time
Tax traceability none potentially yes
Loans NA potentially yes
Interest on deposit NA potentially yes
Network size everyone large small

16. 16
RIS
Trade off for MM providers
Free pay in, pay out and
transfers
High fees
Maximizes MM volume and
financial intermediation
function
VS
Transition to lower fees as mobile money value increases
Cash Like Bank like
Maximizes agent
network and uptake

17. 17
Cash transaction in the informal sector don’t trigger any revenue for the state
The transaction with mobile money triggers the following revenues for the state:
Levy on the fees
VAT on the fees
Withholding tax on MM agent commission
Corporate income tax on the profits of the telco
Adding a levy on transaction values is adding insult to injury.
The other fees can be justified to allow fair competition between formal banking and mobile money.
A levy on EFT or credit card payments would heavily impact commerce. The same can be expected
for mobile money, with the exception that it mostly affects the poor.
RIS
Taxation and fees for mobile money transactions
compared to cash
MM
agent
MM
agent
Telco
deposit fee
VAT
excise duty
WHT
Cash: no fees, no tax
revenue for the state
Withdrawal fee
VAT
excise duty
WHT
Excise value on transaction value

18. 18
RIS
Total Agent Cash-in Cash-out (Value KSh billions)
0
450
900
1,350
1,800
2007
Q2
2008
Q2
2009
Q2
2010
Q2
2011
Q2
2012
Q2
2013
Q2
2014
Q2
2015
Q2
2016
Q2
2017
Q2
2018
Q2
2019
Q2
2020
Q2
2021
Q2
Kenya removed some
taxes and increased the
threshold for others as a
response to the COVID-19
pandemic.
The government ordered
that transactions below
Ksh 1000 be excluded for
mobile money excise duty
and some interbank cash
transactions were free.
The adverse effect of excise duties on mobile money is
clearly demonstrated in the case of Kenya

19. 19
RIS
In May 2022, the Ghanian government introduced an e-levy of 1.5% on all mobile money
transactions.
Transactions that are less than 100 cedis (US$8.1) are excluded from the e-levy.
On the 11th of January 2023, the government reduced the e-levy to 1%.
MTN released its annual results for 2022 and we see the impact clearly: though the levy was
only imposed on the 22nd of May, mobile money revenues declined by 12% for the 6 months
ending June 2022 and by 28% between H2 2021 and H2 2022.
The adverse effect of excise duties on mobile money is
also captured in MNO revenues
MTN Ghana
1H18 2H18 1H19 2H19 1H 20 2H 20 1H 21 2H 21 1H 22 2H 22
Fintech as % of revenue
Fintech revenue in ZAR million
1,762
2,136
2,450
2,261
2,163
1,765
1,511
1,284
1,434
849
22%
22%
24%
25%
25%
21%
21%
20%
23%
15%
22%
22%
24%
25%
25%
21%
21%
20%
23%
15%

20. 20
In 2021, P2P transactions topped USD386 billion or more than USD1 billion a day.
Total global annual value of mobile money transactions in 2021 was USD 1 trillion
RIS
The temptation problem: what if we could take x%
to build schools…..
Sources: https://www.gsma.com/sotir/wp-content/uploads/2022/03/GSMA_State_of_the_Industry_2022_English.pdf
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
1,000
795
631
533
380
291
221
160
101
68
Total annual value of transactions, 2012–2021 in USD billion

21. 21
RIS How quickly is money eaten up by a mobile money
levy on transaction value?
Average
circulation of
20 GBP note
What would be left at x% levy
of transaction amount
0.5% 1% 1.5%
Exchanges
per year
247 5.8 1.7 0.5
Lifespan
exchanges
2,328 0.00017 0.00000 0.00000
https://www.theguardian.com/news/datablog/2015/sep/04/how-often-uk-banknotes-change-hands
The Guardian reported that a GBP 20 note changes hands on average 247 times in a year and 2328
times over its life span. That may be even higher for bank notes in Africa.
If there was a transaction value levy of 0.5% on notes, a GBP20 note would have lost lost nearly three-
quarter of its value after 1 year and all its value over the average lifetime
Value loss within a year
GBP
0
5
10
15
20
Transactions
0 22 44 66 88 110132154176198220242
0.5% 1% 1.5%
At a levy of 1.5% the note would have lost 97.5% of its
value after 1 year.
Mobile money circulation can easily be higher than note
circulation, conceptually.

22. 22
Best-practice principles for taxation
RIS
Broad-based: A broad base of taxation means that a lower tax rate is required to
raise the same revenue, while sector specific taxes distort incentives and require
higher levels of taxation to get the same revenue. (VAT = broad-based eg)
Take into account externalities: Sector specific taxes should be imposed on
activities with negative externalities where the objective is to lower consumption,
such as alcohol, tobacco or gambling. They should not be imposed on sectors
with positive externalities, such as telecoms and mobile money.
Simple and enforceable: Taxes should be clear, easy to understand, and
predictable, thereby reducing investor uncertainty and ensuring better
compliance. ICT sector taxes usually comply with this requirement since telcos are
well organized and tax can easily be collected.
Incentives for competition and investment should be unaffected: Higher
taxes for one sector in comparison to the rest of the economy could reduce
investment in that sector.
Progressive not regressive: The tax rate should increase as the taxable amount
increases. Specific value taxes on small amounts should be avoided because they
make the poor pay more.

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RIS
CONCLUSION

24. 24
Adopt a long term vision focusing on economic
growth and job creation:
Unleash, not squeeze, the ICT sector
ICT sector taxes in general prevent the poor from participating in tomorrow’s
information society
Mobile Money levy on transaction value is like a levy on EFT or credit card
transaction
a. It is discriminating mobile money over other payment channels
b. Lowers the mobile money volume in the system
c. Incentivizes to stay informal
d. Affects the poor more than the rich, who have alternatives
The more people that have broadband access, the easier it will be to serve
them with e-gov, e-health, e-education and financial services.
The more equal mobile money is to cash to higher the opportunities to make
money of financial intermediation, which facilitates growth.
Dropping ICT excise duties will serve Africans better and grow tax revenues
faster, creating a win-win situation.
RIS

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RIS
Dr. Christoph Stork , Partner, RIS
+27 84 999 0002, christoph@researchictsolutions.com
Team
Steve Esselaar , Partner, RIS
+1 778 865 5695, steve@researchictsolutions.com