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A4AI seeks mobile phones tax reduction

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The Alliance for Affordable Internet (A4AI), has challenged governments of member countries, including Nigeria, to reduce taxes and duty on mobile phones.

A4AI, a global group advocating cheaper Internet, said this has become necessary to make phones affordable to many people, adding that phones are no longer a luxury.

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The group in its latest report, titled: “From Luxury to Lifeline”, said the COVID-19 crisis has underlined that the internet and the devices that allow people to access it are no longer luxuries. “These devices are lifelines, and governments should be setting policy accordingly to ensure as many people as possible can buy them” it stated.

While noting that countries use import duty, excise taxes, or other sector-specific taxes to skim revenue off the top of the mobile sector, it said the taxes range from two per cent to 35 per cent of additional costs on devices and are being justified by the idea that the ICT sector is a luxury.

“Such taxes have been the target of previous successful policy campaigns to reduce taxation on mobile devices. The Covid-19 pandemic shows that internet access is not a luxury but a lifeline and a basic right. Internet-enabling hardware must not all be treated as luxury consumer goods,” A4AI stated.

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According to the group, mobile phones now being used for everything from remote learning and working to contact tracing and telehealth, as such, Internet connectivity has never been more important.

The body said access is critical not only for individuals’ wellbeing but for the health of a country’s economy.

“With the economic disruption of Covid-19, digital growth will be even more important for national economic performance,” the group added.

A4AI observed that while the price of mobile devices has fallen steadily over recent years, nearly 2.5 billion people live in countries where the cost of the cheapest available smartphone is a quarter or more of the average monthly income.

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The group advised that policymakers could make quick progress on device affordability by reducing taxes that apply to low-cost devices.

“This directly brings down costs for consumers, and if applied to low-cost devices only, can encourage manufacturers and retailers to offer lower-priced products to qualify for the tax exemption, decreasing prices across handset markets,” it said.

For this to be effective, the group advised governments to design and monitor policies carefully to make sure that changes in the tax regime translate into lower prices for consumers. “While targeted tax reductions mean lower tax revenue short-term, the increase in digital activity as more people use the internet is likely to drive higher long-term economic growth.

“Eliminating these taxes might cause a short-term dip in tax revenue, but with the potential for greater productivity and digital activity in the medium-to-long-term. The Kenyan government saw this when it eliminated VAT on mobile handsets, resulting in sales increasing by more than 200 per cent in the following years. This, in turn, helped spark greater market competition in mobile broadband with cheaper tariffs for Kenyans and more digital activity across the country,” A4AI said.

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Speaking specifically to countries like Nigeria, which is currently pursuing a digital economy agenda, A4AI said: “Countries looking to accelerate their digital economies must account for device prices and the barrier to access that they represent to billions of people across the globe.

“Without interventions, many will source their devices through second-hand, grey, and black markets with lower degrees of trust and sometimes poorer quality devices.”

It added that tax policy and Universal Service and Access Funds (USAFs) offer two key levers to make devices more affordable. In addition, it said international cooperation through development aid and multilateral development banks could help to scale promising pilot financing projects to help more people buy an Internet-connected device.

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