A new telecoms tax epidemic sweeps across Africa : Increases of up to 100% in international calling costs

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A new telecoms tax epidemic is sweeping across Africa adding to the already high tax levels imposed on operators on the continent. This time the tax is being levied on inbound international calls and will increase their costs by between 20-100%. This will make the cost of doing business with Africa rise significantly in a time of global economic downturn. Worse still, the tax is directly in contravention of the Melbourne Convention that has been signed by the majority of African countries. Isabelle Gross investigates.

In an article entitled “New tax on international communications in Cote d’Ivoire – a market in retreat” we reported on the introduction of a new tax on international incoming calls in Cote d’Ivoire. This tax applied to all calls to the country from overseas including direct, transit and roaming calls. The increase in calling charges was CFA20 (0.03 euro cents), an increase of 20% in terminated and transited calls.

However, following strong opposition by the Ivorian employers’ organisation UNETEL which took up the cudgels on this issue, the Government seemed to retreat on this issue. According to the Official Journal of the Republic of Cote d’Ivoire dated 5 November 2009, a Presidential order n°2009-289 signalled “the suspension of the tax on international telephone interconnection to be charged to companies based in de Côte d’Ivoire initiated by article 54 of the fiscal annex of order n°2008-381 of 18 December 2008 by the Government as part of the budget for 2009.” Telecoms operators breathed a sigh of relief and the Ivorian diaspora could rejoice at not having to pay more to ring their loved ones at home. But for how long?

Unfortunately the news is less good for the Gabonese. Gabon’s Government represented by the Ministry of Communication, Post, Telecoms and ICT, introduced a similar tax with order n°359/MCPTNTI/Cab of 24 September 2009, whilst at the same time fixing wholesale termination prices for fixed and mobile calls into Gabon as follows:

- 137 francs CFA (US$0.29) a minute for termination to mobile networks

- 137 francs CFA (US$0.29) a minute for termination to fixed networks

Article 10 of the order specifies that “operators will pay 72 CFA (US$0.15) per minute of this (type of) communication to (the regulator) Artel, which has overall responsibility for collecting the tax and will share revenues between itself and the technical operator of the scheme.” The new tax translates into a 52.5% increase in the wholesale termination price of calls to Gabon. At the very least, this increase goes against the pattern of evolution of calling costs across the rest of world.

On 6 January Ghana Press Agency (GNA) reported Haruna Iddrisu, Minister of Communications announcing that the Government of Ghana wanted to establish this year a centre for the verification of incoming calls. According to GNA, the Minister said: « We estimate that if this is done well government will generate an additional US$50 million per annum (in taxes) from inbound international calls ». According to our sources, the wholesale price of termination of a call to Ghana is likely to go from US8-9 centres to US19 cents a minute, in other words more than a doubling of current prices! So it started in Cote d’Ivoire with a 20% increase and went on to be a 52.5% increase in Gabon before reaching 100%+ in Ghana.

To justify this surge in prices, the Governments of the respective countries believe that the establishment of a “verification centre” will put an end to fraud and finish off the grey market. This argument is at best simplistic and short-term for what it will actually do is to encourage the development of alternative routes. Take the example of Gabon where the price of wholesale termination of a local call is 40 FCFA (US$0.09) while that for an incoming international call will be 137 FCFA (US$0.29), more than three times more. This gap is simply an invitation to create grey market routes.

In this economic plan, the increase in the price of wholesale terminations for incoming calls will translate into falling numbers of incoming calls and therefore a lowering of the turnover of telecoms companies which in its turn will lead to a fall in tax receipts generated by the sector.

For local players in telecoms and those more generally in ICT in the respective companies this tax puts the brakes on the development of activities associated with “hubbing”. At the prices proposed who would want to transit their traffic via Ghana? Furthermore, it threatens the key plank of Ghana’s ICT strategy, its desire to attract BPO outsourcing and call centres. At these prices, why would a multinational choose to outsource its call centre function to the country when others offer cheaper inbound calls?

According to Gabriel Solomon, Senior Vice President of the GSM Association with whom we raised the problem: « The particular tax that you highlight, on incoming international calls, is a short term measure to generate cash by governments that will have a very negative impact on that country’s international competitiveness and will lower the amount of foreign direct investment, thus lowering the governments tax base: it is counter productive. The tax will also hit trade flows to and from the country and traders have to cope with a massive hike in transaction costs. We are against such taxes as they harm all stakeholders and we advocate that they be removed immediately. ».

Similar points were made to us by the Head of Regulation at Tigo (one of Senegal’s mobile operators) El Hadji Babacar Ba. According to Ba, the introduction of such a tax would have disastrous consequences for telecommunications in Senegal. But nothing is certain about how things may yet turn out. That said, the denial by regulator ARTP following an article on the topic of raising such a tax in Le Populaire of 25 September 2009 shows that something has been going on.

Perhaps we should remind both Senegal and Ghana before they set off down this road that they are signatories of a convention that specifically prohibits putting taxes on incoming international calls. This is the Melbourne Convention of the ITU of 1988.

The Melbourne Convention which has been signed by a majority of African countries is an agreement which comprises of a Regulation of International Telecommunications which stipulates in article 6 « Charging and Accounting», paragraph 1.3 « Where, in accordance with the national law of a country, a fiscal tax is levied on collection charges for international telecommunication services, this tax shall normally be collected only in respect of international services billed to customers in that country, unless other arrangements are made to meet special circumstances. »

It clearly repeats that the new tax on incoming international calls will be paid in the country of origin and therefore these taxes are in direct violation of the rules defined by the Regulation of International Telecommunications signed by all parties to the Melbourne Convention.

In their submission to roll back this new tax on incoming international calls, the Gabonese mobile operators underlined that:”the annex of the fourth protocol of the Agreement on the Sale of Services, the underlying agreement on telecommunications negotiated by the WTO in February 1997, which came into force on the 1st of January 1998, the distribution of taxes such as national interconnection rates should tend towards (being based on) the costs”.

“In other words, the distribution of taxes should not be higher than the local interconnection rates (taking into account the additional cost of a minimum international segment). In the light of these two articles, it is clear that no tax must be applied to incoming international traffic.” If the regulator Artel and the Ministry of Communication, Post, Telecommunications and ICT do not reconsider their decision, the only recourse open to operators would be the tribunal of appeal, a lengthy process during which the tax would continue to be applied.

With a growing number of African countries contemplating putting in place such a tax, it is becoming almost a tax epidemic across the continent. Introduction by one or more countries will stimulate others to do the same. To combat this infection, it’s necessary to both treat the patient and put in place measures to avoid the contagion. In this context, we would encourage operators and their representative bodies to look at what COFTEL (conférence des opérateurs et fournisseurs des télécommunications) has done. In November last year it asked UEMOA to make the Heads of State of UEMOA countries aware that they should not embark on this policy which would have negative economic consequences. As the saying goes:”Too much tax kills taxes.”