Ghana’s 20% import tax on mobile phones has implications for consumers

The Parliament of Ghana recently passed into law a bill that places an import tax on telephones and mobile phones. Prior to this, there was zero tax on mobile phones importation.

The law, Customs and Excise Amendment Bill 2013 seeks to impose a 20 per cent levy on mobile, cellular and satellite phones imported into the country and is expected to enable government raise an amount of GH¢49.8 million to support its developmental activities for the year.

The amended Customs and Excise (Duties and Other Taxes) (Amendment) Act, 1996 (Act 512) imposes import duty on telephone and mobile phones, reduces the environmental excise tax on plastic and plastic products from 15 per cent to five per cent.

The new law therefore repeals the Tariff No 6 of the Customs and Excise (Duties and other Taxes) Act, 2012 (Act 840).

The government’s immediate purpose for this tax is to raise additional revenue for the budget-to mitigate a widening deficit. In addition it explained that the tax will protect domestic manufacturers of mobile phones and protect jobs in the sector.

Before the tax came into force, Parliament’s Finance Committee, Vice Chairman, Gabriel Kodwo Essilfie, observed that import duty on telephone sets were removed in  2008, however this did not yield the intended results. Rather, their prices increased, hence the government’s reintroduction of the import duty.

The problem with this law however is that, government’s revenue generation; protection of local manufacturers and jobs in the sector are only a partial consideration of the overall costs and benefits of the law.

Ghana has over 25 million mobile phone subscribers, exceeding the 100% penetration rate. This figure however can be deceptive as it does not mean that all 24 million Ghanaian’s own mobile phones or subscribe to mobile phone services. There is however a phenomenon of people subscribing to more than one mobile operator service.

The mobile ecosystem is made up of mobile operators, mobile phone users, importers and retailers of mobile handsets, vendors of recharge vouchers, repairers, and dealers in accessories and so on.  At the same time, mobile telephony has opened up more possibilities and has facilitated innovation in agriculture, education, health, security and better governance.

The sector also offers opportunities to applications developers and programmers.

The contribution of the sector to the economy is significant and its potential contribution to GDP is estimated to be 2.40%.  Moreover studies by the World Bank, show that there is a direct relationship between mobile penetration and GDP. In developing countries, it has been shown that for every 10% increase in mobile penetration there is a 0.81% point increase in a country’s GDP (in developed countries this figure falls to a 0.60% contribution).

According to the Ghana Chamber of Telecommunications, the sector has created over 1.5 million jobs in the country and inflation in the telecommunications industry is 0.6 per cent, the lowest among all the key sectors in Ghana, the report indicated.

A 2010 Ghana Statistical Service report had said the telecoms industry has been a key driver of economic growth. It said the sector directly accounted for 7% of investments in Ghana, 10% of government income, and 2% of GDP.

It is however clear that without mobile phones the whole mobile ecosystem and the associated sectors cannot function. What therefore is the basis for the tax on mobile phone imports?

Every governmental policy should be weighed and balanced to avoid the costs of such a policy exceeding the benefits. The key issues to analyze here are whether the government’s assertion that the tax is to protect domestic producers or manufacturers as well as protect jobs are verifiable.

Does Ghana have mobile phone “manufacturers”? What is the contribution of these manufacturers to GDP compared to the number of people who would be denied access to mobile phones?  What is the number of jobs that can be protected from the manufacturers compared with the number of jobs in the so-called non-manufacturing sector of the mobile phone ecosystem?

The import tax clearly goes against one of the main drivers of mobile subscription growth in Africa: low-cost handsets coupled with pre-paid services have made ownership of mobile phones affordable. Moreover mobile phones have become essential consumer goods and status symbol throughout the continent, as such; the import tax could curtail consumer’s ability to spend on handsets.

The import tax will also affect the communication ability of many Ghanaians. According to the African Mobile Observatory 2011, mobile services have become the primary means of voice communication for many of the inhabitants of Africa as the number of fixed-lines has stagnated or has not increased as mobile phones have. Hence mobile phones are the main communication tool available to many people.

By increased penetration of mobile phones, Africa is at the forefront of global Mobile Money industry, but Ghana is not yet able to develop its mobile money industry to the level of other African countries. With the import tax, efforts in that direction could be hampered.

Visa Inc. did a study recently which says 93 percent of Ghanaians are aware of the mobile money product, but not many Ghanaians seem to be using the service. The study, though fails to indicate how many Ghanaians use the service.

The import tax on mobile phones could have potential negative impacts on ICT development broadly.

ICT has been recognized as the key driver for sectors such as health, education and agriculture.  Ghana’s Ministry of Communication is cited by the Africa Mobile Observatory as stating that: “The government of Ghana is committed to pursuing an ICT for Accelerated Development (ICT4AD) vision aimed at improving the quality of life of the people of Ghana by significantly enriching their social, economic and cultural well-being through the rapid development and modernization of the economy and society using information and communication technologies as the main engine for accelerated and sustainable economic and social development”

The imposition of import tax on mobile phones is therefore at variance with this statement and reflects a policy conflict.

By Emmanuel K. Dogbevi & Dode Seidu