What happens when a government relies too much on a single source of taxation?

What happens when a government relies too much on a single source of taxation?  The goal of taxation, especially for the ICT sector, is not revenue maximization, but to balance competing goals of access to the telecom services and at the same time generate sufficient revenue to pay for public goods like roads and health care. The excessive focus on excise duties as one of the main mechanisms to get tax revenue from the sector means that usage is penalized by driving up prices and lowering affordability. This also disproportionately targets the poor. 

Figure 1 shows how Uganda has taken this approach to its extreme. Airtel and MTN combined pay more than 39.9% of total excise duties for the FY 2019/2020. Yet they only contribute 1.8% of GDP. 

Uganda is too reliant upon a single source of taxation and the effect is less competition and increasing prices. Africell left the market in October and Smile Communications is offline and effectively bankrupt, leaving just two dominant operators, Africell and MTN. Under these circumstances, the long-term outlook for the Ugandan market is poor. 

Other news from around Africa 
  • Google’s Equiano cable is expected to land in South Africa in June this year. Economic analysis shows a reduction in prices of 21% and an additional 180,000 jobs.  
  • A smartphone manufacturing facility in South Africa is bankrupt. The facility received billions of Rands in government support and yet still failed. This is a warning to the crazy plans to build smartphone manufacturing plants in Tanzania and Angola. 
  • South Africa’s spectrum auction is getting more complicated (hard to believe!). The high court will hear the application brought by Telkom to change the auction process only in April 2022. The auction is scheduled for 22 March 2022. Telkom has warned that unless the auction is delayed until after April, it will consider reinstating its application for an interdict to halt the auction.