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Catalysing Universal Connectivity

Tax Considerations

We recently marked a momentous occasion for telecommunications in Tanzania. The Universal Communications Service Access Fund (UCSAF) and leading Mobile Network Operators (“MNOs”), including MIC Tanzania Plc., Vodacom Tanzania Plc., Airtel Tanzania Plc., Viettel Tanzania Limited, and TTCL, signed groundbreaking agreements for the construction of telecommunication towers. This development is set to have a transformative impact, as a total of 758 telecommunication towers will be erected across 713 wards in 26 regions of Mainland Tanzania. Her Excellency, Samia Suluhu Hassan, the President of the United Republic of Tanzania, along with other national leaders and business leaders, attended the event.

The government's vision is to ensure that after the 18-month construction phase, approximately 8.5 million individuals, particularly those residing in rural areas, experience a remarkable improvement in connectivity. Furthermore, this initiative will provide citizens with reliable access to telecommunication and internet services, ultimately bridging the digital divide and boosting financial inclusion.

The government's initiative, led by the Ministry of Information, Communication, and Information Technology, is a highly commendable action that represents a significant stride towards achieving the objectives set forth in the National Five-Year Development Plan ("FYDP III"). This ambitious plan aims to elevate the percentage of internet users within the population from 43% to 80% and expand broadband communication coverage from 45% to 80% by the year 2025/2026.

Although the recent developments are undoubtedly positive, there are additional measures that can be implemented to further enhance the desired outcomes. One crucial aspect is the consideration of tax incentives for the telecommunication industry or the reduction of the existing substantial taxes imposed on the sector.

The current tax structure imposes a significant tax burden on telecommunication services. Consumption taxes like an 18% Value Added Tax (VAT) and a 17% excise duty, along with the 18% VAT and 10% excise duty on money transfer charges diminish the consumers purchasing power. Moreover, levies on money transfer transactions and airtime contribute to the increased costs of telecommunication services. In addition to these indirect taxes, MNOs also bear the weight of direct taxes such as corporate tax.

These tax obligations have several adverse effects. Firstly, they increase the cost of telecommunication services for consumers, which may hinder accessibility, particularly for those in lower-income brackets who are the target of the telecommunication tower construction in rural areas. This can impede progress in bridging the digital divide and achieving the desired level of broadband penetration. Secondly, high taxes limit the financial resources available to MNOs for infrastructure development, network expansion, and technological advancements. This, in turn, could hamper the industry's ability to provide improved services and meet the growing demands of users.
To address these challenges and unlock the full potential of the telecommunication sector, it would be beneficial for the government to re-evaluate the tax structure, and exploring options such as revising excise duties and considering tax incentives that could alleviate the burden on consumers and MNOs. By creating a more favorable tax environment, the government can support increased affordability, stimulate investment, and foster sustainable growth in the telecommunication industry.

It is important to consider taxes not only on telecommunication services, but also on devices like smartphones, tablets, and computers. These devices play a crucial role in fully benefiting from infrastructure developments. Since a large portion of the rural population falls into the lower income bracket, finding ways to lower the prices of digital devices is crucial.

In 2021, there was a positive step taken with the exemption of VAT on the supply and importation of these smartphones and modems. Unfortunately, this move did not have the desired effect of reducing prices for consumers, Hence, in 2022, the government revoked the exemption, resulting in an 18% VAT on smartphones. Given the country's level of industrialization, the government could reconsider its decision on revoking the exemption of VAT and / or further reduction on import duties to ensure that the prices of these devices reflect the benefits of the built telecom infrastructure.

In addition to the previous points, one of the main challenges faced by the MNOs and telecom tower operators is the dispute regarding the classification of towers as depreciable assets. MNOs and tower companies believe that towers should be classified as Class 2 depreciable assets, which would allow for a 25% wear and tear allowance on a diminishing value basis. However, the TRA contends that towers should be classified as Class 6 assets, resulting in only a 5% deduction on a straight-line basis. Whilst this is a matter of timing, the cashflow impact can be significant given the investment quantum involved

To encourage investment in the sector, it is crucial to adopt a forward-looking approach and accept the classification of towers under Class 2. This clarity can be explicitly effected in the third schedule of the Income Tax Act to avoid future disputes.

The impact of taxes on the telecommunication industry is quite evident. A significant example is the industry's performance when the high mobile money transfer levies were initially introduced in 2021 compared to when these levies were reduced in 2022. We cannot ignore the effect of taxes on this industry. By incorporating tax incentives or revising the current tax structure, the government can create a more favorable environment for the telecommunication sector. This, in turn, will accelerate progress toward achieving a thriving digital economy and reaping its associated benefits.

Waziri Jumanne is Manager at Deloitte Consulting Limited. The views expressed are his own and not necessarily those of Deloitte. He can be reached at