This House believes that Tanzania’s taxation on mobile phones is a good model

Tax is vital for a state; it is needed in order to carry out any of the functions of a state from national defence to welfare. However there is often a perception that Africa largely survives on handouts with a less developed taxation system. Investigating future trajectories for African development has therefore begun to focus on how domestic resources can be mobilised - how can tax be collected and what is a sustainable taxation policy? Tanzania presents one innovative idea; taxing mobile phones. In June 2013 Tanzania’s TRA (Tax Revenue Authority) confirmed the implementation of a national SIM card tax. The tax policy will impose a 1,000 Tanzanian shilling tax on each subscribed SIM card. With the prevalence of Tanzania’s informal economy argued to represent a barrier, and the prevalence of mobile technology identified as a potential taxable asset, to what extent does the SIM card taxation provide a pioneering model to be followed by others?                                                    

Taxation in Tanzania has remained a source of conflict and tension over time. Following independence, Mwalimu Julius Nyerere focused on building a unified, national ideology. One method for building unity was taxation incentives centred on the concept of Ujamaa - such as the ‘Poll tax’. However, the implementation of tax policies has proved to be prone to violence, repressive, and created conflictual state-society relations[1]. Therefore considering the contentious history of taxation does the revised approach offer solutions? The model advocates a universal tax, for all, on a product which has become more accessible and a vital, modern day necessity. Similarities may be drawn to the socialist ideologies motivating Nyerere’s Ujamaa. The model is universalising an equal, tax payment. The model is currently gaining regional support, with Uganda and Kenya implementing similar taxation models.

Upon returning to the ideas, interests, and context, of the tax policy this debate explores the controversy surrounding the model. The financial reform is putting taxation on the policy agenda, however, is it targeting the right resources for poverty reduction, promoting good governance, and sustaining high growth rates? Decisions have recently been confirmed to reject the SIM card tax.

[1] See further readings: Fjelstad and Therkildsen, 2008.

 

Title 
The importance of mobilising domestic resources
Point 

In order to sustain development and growth nations need to build domestic resource mobilisation capacities - through collecting tax and savings. Domestic resource mobilisation enables the transition into a capitalist mode of production - poverty can be targeted and sufficient economies built. Social and economic facilities can be provided. To meet the Millennium Development Goals (MDGs) and enhance performance capacity African nation-states need to improve the amount of funding they raise through taxes[1].

In order for development to be assisted, international donors and intervention needs to focus on encouraging innovative models of taxation such as taxing mobile phones. Such taxes don’t have the track record of failure other taxes have providing a new opportunity to redesign the taxation system. Initiatives such as the mobile phone tax provide a trial for such a new model helping to gain support for future changes.

[1] See: UNCTAD, 2007.

Counterpoint 

Taxation remains a vital component of domestic resource mobilisation however focus needs to be placed on improving Tanzania’s top revenue sources before innovative new models. Although the performance of tax collection has improved - with tax revenues rising by a rate of 15.7% between 1996/97 and 2007/08 (AfDB, 2011) taxation does not reach many areas that could be taxed; despite increasing exports of minerals and natural resources, 

Title 
Building productive capacity through increasing revenue
Point 

Between 2003-2009 the annual growth rate of mobile cellular subscriptions in Tanzania was 44.21%, higher than the average in Africa (Ondiege, 2010). Estimations suggest around 18bn Tsh[1] will be collected a month through the SIM card tax model (Rweyemamu, 2013). In 2012, Tanzania’s total GDP was calculated at ~45tr Tsh[2] - the tax could therefore provide almost 0.5% of GDP in taxes. Such a boost in government taxation will enable projects such as improving rural infrastructure (including potentially mobile phone coverage!) or help reduce the deficit. That one tax can raise so much shows the potential of this kind of taxation.

[1] Equates to ~11.2mn USD (January 2013).

[2] Calculated based on World Bank Data (2013) and exchange rate as per January 2013.

Counterpoint 

We need to be critical of the cumulative potential of the tax model proposed. Firstly, the theory of the state’s capacity and how it functions in practice differ substantially. The idea of taxation acting to enhance the productive capacity of a nation is based on assumptions that the institutions, human resources, and state-capacity, are already present. This is not always the case in Africa.

Corruption and bad governance are prevalent. Reforms in 1996 to curb corruption in the TRA were reversed due to misunderstanding the nature of corruption amongst tax officials and administration (Fjelstad, 2003). Tax-revenue performance remains comparatively low[1], there is little reason to simply altering what taxes there are will change this.

Finally, alternative methods can be used to assist rural infrastructure projects, and enable national savings. For example, revising the role of agricultural marketing boards[2].

[1] See further readings: Gray and Kahn, 2010.

[2] See further readings: Baffes, 2005.

Title 
A fair tax
Point 

The model is for rolling out a tax for all, on a commodity used by all. The cost is small and fair, only applying to individuals who are able to afford to buy and use a working mobile phone. Those who can afford multiple phones will be hit harder so this is a progressive tax.

Arguments suggesting the tax cost is unreasonable fails to look at the politics constructing such a discourse and manipulating what collected tax can do. Motivations for opposition are not necessarily emerging out of concern for individuals’ well-being, but rather have alternative motives. The MOAT (Mobile Operators Association of Tanzania) oppose the tax fearing profit margins may decline; and politicians may use fear over the new tax policy to gain political support for oppositional parties. The opposition of the operators however merely reaffirms that it is a fair tax and those who would support opposition to the measure can be won round through explaining this.

Counterpoint 

The SIM card taxation is an inequitable model for Tanzania’s poor. The tax fee proposed will have detrimental effects to low-income users, whereby the cost exceeds the amount of money they spend on their mobile. For example considering the cost of tax, living, and mobile phone usage, the poor may be placed in a vulnerable position. Evidence suggests 8 million out of 22 million SIM card owners will be affected - with the rural poor feeling the greatest economic burden[1]. The burden of taxation may simply mean the poor can’t afford a phone.

Taxation cannot be promoted without recognising the constraints on household savings and income. Universal benefits are debatable when the initial disposable income is polarised to start - the price tag is not-so-small for some.

[1] See further readings: BBC, 2013; Luhwago, 2013.

Title 
Halting the technological revolution
Point 

The tax creates disincentives when we consider the potential losses that will result in the technology sector. The technological revolution in Tanzania will be jeopardised. The growth of mobile phones across Tanzania indicates the emergence of a ‘network society[1]’ but if the population stops buying mobile phones this will end. Taxing SIM cards may deter individuals from buying mobile devices, due to the additional cost. Further, alternatively if the manufacturers and providers attempt to take the burden of the tax to keep the price of a mobile down then supply will be affected. Currently individuals use multiple service providers to get cheaper phone call rates; however, this would no longer be a sensible option.

Taxing SIM cards will introduce costs to the entrepreneurship and service provision operating through mobiles. Technology holds great benefits within the twenty-first century; imposing taxation acts to exclude access and limit potential job opportunities. Mobiles have taken services to the people[2] - a vital resource for health services and information, aid distribution, banking, and commerce.

[1] See further readings: Castells, 2011.

[2] See Ondiege, 2010 on mobile banking. In Tanzania, where for every 100,000 people there is one bank, mobiles have enabled banking to penetrate across society.

Counterpoint 

With mobile phones now a crucial commodity for everyday life, the digital revolution will not be stopped by the SIM card tax. The initial reaction to the tax may result in a temporary decline in new subscriptions and SIM card set-up, however, in the long-run subscriptions will continue to rise. Many people are willing to spend large amounts on a new phone; the addition of a tax will not deter them.

Title 
Taxes cannot be justified while the network is poor
Point 

Can taxation be justified when the network remains poor, limited, and temperamental in numerous locations? Network coverage in Tanzania is 2G and geographically concentrated (see MDI, 2013). It must be improved before the government begins to use it as a tax resource. Tanzania’s Right to Information Act recognises that government transparency and public information is a right. Therefore increasing costs on how people access information, and failing to provide good service, neglects individual rights. A right to information is not just a right to information for those who can afford the tax.

Counterpoint 

The SIM card tax will provide positive knock-on effects for network expansion and improvement. By enforcing tax payment to individual users, mobile phone customers are able to demand better service quality and distribution. The public-sector have the obligation and responsibility to ensure tax can be justified so will encourage the development of the network – and if necessary use some of the taxes raised to pay for it.

Title 
Quick-fix policies: a failing model of implementation
Point 

Tax evasion remains a key concern across Tanzania. There remains a low tax base and high evasion. Imposing a quick-fix solution by taxing mobile phones fails to solve underlying issues. The model is widening the base of taxation, whilst neglecting the issue of tax evasion.

Therefore, to what extent will the model provide future benefits? Domestic resource policies need to ensure the taxation enables state-building and future capacities to impose tax more effectively and equally. The model relied on MOAT to collect taxes monthly, reducing the need for the TRA to construct a functioning tax-collection system or resolve social resistance to taxation. This then is effectively privatising a vital state function.

Counterpoint 

The SIM card tax is actually under-ambitious for potential change to be maximised. Nevertheless, the tax initiates a step in the right direction. Firstly, it will ensure reductions are made in tax avoidance. Secondly, the model shows the potential role the private-sector can play in tax collection. Decentralisation, and shifting responsibility, to independent providers means valuable resources can be collected outside of the criticised TRA structure. For example, the Association of Tanzania Employers may be granted greater involvement in enhancing corporate tax collection. Estimations suggest corporate tax exemptions resulted in annual revenue losses of 4% between 2011-2012 (Gaddis, 2013).

The SIM card tax indicates domestic resources can be mobilised by engaging in public-private partnerships. For progressive tax systems, Tanzania needs to utilise private actors.

Bibliography 

AfDB (African Development Bank Group), Domestic Resource Mobilisation for Poverty Reduction in East Africa: Lessons for Tax Policy and Administration, AfDB, Belvedere, 2011.    

Fjelstad, O-H., ‘Fighting Fiscal Corruption: The Case of the Tanzania Revenue Authority’, Public Administration and Development, 23, 2, pp 165-175, 2003  http://onlinelibrary.wiley.com/doi/10.1002/pad.278/abstract?deniedAccessCustomisedMessage=&userIsAuthenticated=false

Gaddis, I., ‘Is Tanzania Raising Enough Tax Revenue?’, World Bank Blogs, 2013, http://blogs.worldbank.org/africacan/is-tanzania-raising-enough-tax-revenue

Ondiege, P., ‘Mobile Banking in Africa: Taking the Bank to the People’, Africa Economic Brief, Africa Development Bank, 1, 8, 2010, http://www.afdb.org/en/news-and-events/article/fostering-financial-inclusion-with-mobile-banking-12125/

Rweyemamu, A., ‘New Sim Card Tax: Government ‘Bows’ to Public Pressure’, IPP Media Online, 2013, http://www.ippmedia.com/frontend/?l=57270

UNCTAD (United Nations Conference on Trade and Development), Reclaiming Policy Space: Domestic Resource Mobilisation and Developmental States, UNCTAD, Geneva, 2007, http://unctad.org/en/pages/PublicationArchive.aspx?publicationid=58

World Bank Data, Tanzania, 2013, http://data.worldbank.org/country/tanzania#cp_fin

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