By Christabel Ligami
A reduction of taxes on information and communications technology (ICT) sector will enhance broadband penetration and increase revenues, according to a report by the Economic Commission for Africa (ECA).
The report on Optimizing ICT Sector Taxes is Good for the Economy was presented by the Deputy Executive Secretary (Programme) and Chief Economist of ECA, Hanan Morsy at a High-level round-table discussions on technology for development in Africa on the sidelines of the 56th Session of the Economic Commission for Africa Conference of African Ministers of Finance, Planning and Economic Development (COM2024) in Victoria Falls, Zimbabwe.
“If countries reduce taxes on ICT, it will enhance productivity and growth, widen tax base, stimulate economic growth, create jobs,” said Ms. Morsy, adding that this requires economic modelling and consistent data collection in collaboration with the national statistical offices, ministries of finance, and central banks as well as sector specific ministries and regulators.
“Gradual lowering of sector-specific taxes would lessen the immediate impact on government revenues and allow for medium-term benefits like higher economic growth and more jobs that ultimately lead to greater tax revenue for government to take effect.”
She noted that taxation in the ICT sector needs to be part of the overall tax system considering the trade-offs involved—applying excise duties to the ICT sector penalizes ICT users and lowers economic growth. ICT Sector is backbone for e-commerce and trade in digital services, a mojor contributor to government revenues and balance of payments, Employment creation Connectivity, payment platforms, ID platforms for e-services, Capital accumulation, improved productivity for firms, widened markets, deepened social inclusion.
The report was based on a study conducted in six countries based on available data: Uganda, Kenya, Tanzania, Ghana, Côte D’Ivoire, and Nigeria and will be expanded to other countries within Africa by June.
The objective was to examine the gradual reduction of excise taxes to improve economic growth.
Claver Gatete, United Nations Under-Secretary-General and Executive Secretary of the Economic Commission for Africa (ECA) who moderated the session said Africa can not develop without technology advancement.
“We need to be intentional in our investments in science, technology and innovation. Digitalisation is an essential ingredient for infrastructure development and for generating economies of scale,” said Mr. Gatete.
“It is why the dialogue on the Global Digital Compact is so important for Africa especially as we remain the least digitally inclusive region, with average internet usage at only 40 per cent.”
Didier Nkurikiyimfura, Chief Strategy and Growth Officer, Smart Africa, said broadband growth has been uneven in Africa with some countries having low penetration, while others have limited access to the undersea fibre which affects penetration.
According to Mr. Nkurikiyimfura, for the Single Digital Market to take root in Africa a minimum of 20% penetration is necessary, this can only be achieved with countries working together in a concerted effort. Where penetration is extremely low below 20%, countries may not benefit from network effects to support the digital economy and other projects aimed at interconnecting countries across borders will need to be ramped up.
Charles Murito, Google’s policy lead for Sub-Saharan Africa, said technology can solve a lot of challenges that economies are facing. For instance, when it comes to land rights, blockchain can be able to track the ownership of land from one person to the next. Also, blockchain can be able to bring to help accelerate economic transformation.
“One of the biggest challenges that we found in the health space is that a majority of medicine across the continent are counterfeit and they really cause a lot of challenges within the health ecosystem. This came up especially during COVID-19 but it’s still a problem across the board,” he said.
“So the ability to be able to trace the source of medicine, from the origin, all the way to the chemist to the end consumer is another solution that really, blockchain can be able to solve.”
Giving an example of Kenya’s bond market, Njuguna Ndung’u, Cabinet Secretary, National Treasury and Economic Planning, Kenya has come up with a credit scoring system as it is the market for long term finance.
“Bond markets have always played a key role in financial markets globally; in fact bond markets are seen as the backbone of financial markets all over the world. Bond markets provide governments and corporate entities with funds for investments and grow the economies, provide investment vehicles for asset managers and provide a basis for evaluating other market products,” he said.
Mr. Ndung’u said that the impact of the recent global financial crisis and the subsequent downturn in developed countries’ economies and yields shifted investors to review other options such as developing and emerging markets.
He said Africa needs to position its markets strategically in order to take advantage of the available options by playing close attention to developments in both local and overseas financial markets.
