Weekly digest for 29 Oct 2021

KEY READING FOR THE WEEK

On October 8th 2021, the OECD announced a “ground-breaking” tax deal for the digital age. The new tax deal, signed by 136 out of 140 member states, representing over 90% of global GDP will allocate around US$ 125 billion in profits to countries around the world. As part of our new series on ICT taxes, the focus of this blog is going to be on the bigger picture: is the OECD tax deal going to mean more tax revenues for developing countries or are there other, more effective ways to increase tax revenue? Tanzania is an instructive example. The figure below compares Tanzania against Kenya and Uganda in terms of ICT sector contribution to GDP. Now, in most countries, ICT sector contribution to GDP is increasing. And we see that in Kenya and even Uganda. ICT sector contribution in Kenya has gone from 2.3% in 2013 to 3.1% in 2020. But in Tanzania, it has declined from 1.7% to 1.5% in 2020.

Another factor to consider is the tax-to-GDP ratio. The IMF estimates that there is a tipping point where the tax-to-GDP ratio accelerates growth and development. This means that GDP per capita is 7.5% larger after 10 years for those countries that have a tax-to-GDP ratio of 12.75% or higher. But in Tanzania, the tax-to-GDP ratio is only 11.8%. At the same time, higher broadband penetration spurs economic growth and job creation. An increase of 10% in mobile broadband penetration leads to 2.46% of additional GDP growth ITU (2020), which is not a once-off benefit but continues to benefit a country going forward. For Tanzania, that means an additional US$184 million in additional tax revenues.

Let’s go back to that number of US$125 billion that the new OECD digital tax will redistribute to countries around the world. A back of the envelope calculation shows that the vast majority of the money would go other countries and not Uganda, Tanzania or even Kenya.

Tanzania could expect about US$2 million in taxes from the new OECD tax regime. In comparison, Tanzania could generate US$184 million from improving broadband penetration and there are even greater benefits if Tanzania improves it’s tax-to-GDP ratio to above 12.75%. And these benefits multiply over time! So, where should Tanzania focus its energy? Addressing broadband penetration and improving tax collection is the obvious answer. 

Other weekly news from around Africa

  • South Africa: The Minister of Communications has decided to intervene in the spectrum auction drama to see litigation can be avoided. All the mobile operators in South Africa have sued ICASA because ICASA is attempting to withdraw the emergency spectrum at the end of November, while the spectrum auction is only due in March (maybe, hopefully, unlikely!).
  • Mobile apps: App revenue is expected to soar as the number of global downloads increases from 220.5 billion in 2021 to 312.5 billion in 2025.
  • Airtel Africa: Airtel has released its half year results and seen voice grow by 20% and data by 37% (so much for OTTs taking MNO revenues away!).