ZICTA’s outlook on ICT sector taxes
In October this year, the Zambia ICT Authority (ZICTA) released a report assessing the impact of the National Budget on the ICT sector. It’s a fantastic document that should be required reading for any regulator in Africa. The main focus of the report is on the impact of tax policy on the ICT sector. The biggest change in the 2023 budget is the removal of a two-tier corporate tax rate, where ICT companies paid higher taxes than companies in other sectors of the economy. Prior to the 2023 budget, ICT sector companies paid corporate taxes of 40% on profits over ZMW250k (about US$ 15,000). The new rate is a single tax rate of 35%. It’s not a large reduction, but it is the underlying principle that matters: The ICT sector shouldn’t be singled out for special taxes but pay the same taxes as the rest of the economy. In addition to a reduced corporate tax rate, there are a variety of tax breaks to lower the cost of ICT infrastructure.
The new taxation regime is not what makes the report special. It’s the fact that ZICTA looked at the anticipated impact of these measures by estimating the responsiveness of demand to changes in ICT prices (also known as the elasticity of demand).
| Variables | logTraffic | Penetration | logSubscription |
|---|---|---|---|
| logPrice | -1.446*** (0.127) | -0.436*** (0.0438) | -0.777*** (0.0873) |
| Constant | 21.78*** (0.116) | 0.434*** (0.0397) | 15.67*** (0.0791) |
| Observations | 10 | 10 | 10 |
| R-squared | 0.941 | 0.925 | 0.908 |
| Standard errors in parentheses | *** p<0.01, ** p<0.05, * p<0.1 | ||
ZICTA found that a 10% increase in price would lead to a drop in usage (i.e. traffic) by 14.5%, meaning that usage is highly elastic. The same price increase would result in a 7.7% decline in subscriptions. This makes sense because people can keep their subscription (or SIM card) but just use it less. Similarly, a 10% increase would result in a 4.4% decline in penetration rates. In other words, fewer people would buy a SIM card but the decline would be less than the price increase, showing that penetration is relatively inelastic.
If there is one criticism, it is that ZICTA didn’t release the underlying data, so these figures are hard to confirm. A hyperlink to the underlying spreadsheet would be wonderful. However, this doesn’t change the fact that ZICTA is one of the only ICT regulators on the continent that shows an understanding of the role of price elasticities and how taxation policy can effect usage and access of ICT services. It’s impressive and well done to ZICTA.
Other news from around Africa
- Fibre in South Africa: There are some really interesting initiatives coming out of South Africa at the moment. The Kayamandi Township Fibre Project aims to provide affordable fibre access in the township for a low daily price of about US$0.3 per day.
- Safaricom Ethiopia: There are more than 1 million subscriptions for Safaricom since August 2022. That’s pretty quick growth.