Janauary Makamba

It rose from a small industry, mainly for the rich in the country, about seventeen years ago to a popular service catering for 23 million people by the end of 2011 - thanks to a revolution in the communication sector.

But last week’s revelation by the government if proved correct, casts grave and worrying doubts about the telephony sector’s tax contribution to the economy.

According to the Tanzania Communications Regulatory Authority(TCRA), there were 23.804 million mobile phone subscribers in Tanzania at the end of 2011.

However, since one person very often has two or more network cards, this easily translates to more than 23 million subscribers in the country, comprising over 60 per cent of the total population.

In a survey conducted by this paper analyzing various data obtained from the TCRA website, by the end of last December the average revenue per user (ARPU) was Sh6,705 ($4.2) per month.

ARPU is a financial performance benchmark in the telecoms industry that measures the average monthly revenue generated per customer.

Originally used by telephone carriers, the term has been adapted to other telecoms industries and is now used by carriers providing services such as Internet connection, cable services, cellphone and pager services.

To put things in perspective, when Tanzanian customers click on the screens of their phones or the keyboard to text or make calls, mobile phone companies make about $1.17 billion (Sh1.85 trillion) a year - more earnings than those accruing from the mining sector - basing on the average benchmark revenue of Sh6,705 per user, as documented by TCRA in December, 2011.

This means that Tanzanians contribute an average of $97 million (Sh154 billion) per month as they compete to text, call and surf the Net on their mobile phones, making the industry the biggest by far in terms of turnover.

But, according to last week’s revelation by Communication, Science and Technology deputy minister January Makamba, despite raking in a staggering average of Sh1.85 trillion a year, in return mobile phone companies pay correspondingly far less taxes - casting grave doubts about whether the country is technologically well equipped to collect due revenue from the sector.

Contacted yesterday for comment on the matter, a Tanzania Revenue Authority (TRA) official said it was aware of increased public concerns about the low contribution of mobile phone operators in terms of taxes, contrary to the size and growth of the industry.

TRA acting director of taxpayers education Allan Kiula told The Guardian in an interview that TRA was working hard to ensure everybody and every corporate entity paid the required taxes in accordance with the law.

The statement from the national tax collector comes amid persistent accusations facing mobile telephone companies that their contribution to the national economy through taxes was very low by far compared to the contribution by mobile network operators in neighbouring countries, some of them with a smaller economy than Tanzania’s.

According to Makamba, who quoted statistics from TCRA, in 2010 mobile phone operators in the country earned about $1 billion but paid only $1.7 million in taxes

According to Makamba, in the same year (2010) taxes paid by mobile phone companies in Kenya - East African Community’s leading economy - were $78.3 million while Uganda, a smaller economy than Tanzania, got $31.3 million and Rwanda received $14million, more than seven times that what Tanzania realized during the same period.

The four biggest mobile phone markets in the continent are Nigeria, South Africa, Kenya, and Ghana. Strategic investors in Africa’s mobile industry include South Africa’s MTN, India’s BhartiAirtel, France Telecom (via its Orange brand), Britain’s Vodafone and Luxembourg’s Millicom, which trades as Tigo.

World Bank figures in the Africa Infrastructure Country Diagnostic document rank Tanzania seventh in attracting telecoms investments, with $1.4 trillion (about Sh2, 240 trillion) injected mostly in the mobile telephony subsector between 1998 and 2008. The pack is led by South Africa, which attracted $18.1 trillion, followed by Nigeria and Kenya, with $12.7 trillion and $2.9 trillion, respectively.

“We get information from different people, including experts, on specific industries as well as the media, and we closely follow up to ensure the figures we work on to collect taxes are realistic,” noted Kiula

He added: “Basically TRA ensures all institutions and companies pay relevant taxes. This goes hand in hand with enhancing its staff to be able to handle different business transactions such as mobile phones and mining. It also involves exchange of information and provision of professional support.”

Kiula noted that his institution shares information with revenue authorities in neighbouring countries so as to reasonably compare the operational models and, where deemed necessary, emulates some areas of practice.

When asked on the often repeated claim that TRA and other relevant authorities governing the mobile phone industry rely sorely on figures provided by the operators in tax computation, Kiula said:

“Under the law governing income tax, large companies are allowed to assess themselves and provide data to TRA. However, TRA has powers to reassess the data in order to establish realistic statistics to be used as a basis for computing the payable taxes.”

Deputy minister Makamba said last week that at the moment the telecoms sector’s contribution to the country’s GDP (Gross Domestic Product) stood at 2.5 per cent, which was more than 50 per cent less than Uganda’s 5.2 per cent and Kenya’s 9 per cent.

Makamba said further that in 2011 the telecoms industry grew by about 22 per cent, making it the fastest growing sector, adding that the growth has been steady for the past 10 years. He said for a decade between 2001 and 2010 it grew at an average 11 per cent per a year while the GDP grew at 7 per cent.

He noted that based on the industry’s rate of growth and the cumulative investment in the same period of ten years, which amounted to Sh 2,563 billion, an average of Sh256 billion investment a year and increased penetration rate of 53 per cent, the industry’s contribution to the GDP should have been at least 5.3 per cent compared to the current 2.5 per cent.

His statement came only a few days after he had instructed TCRA to raise the matter with operators for the purpose of drawing up a workable solution to various difficulties being experienced by mobile phone subscribers, including the rate of dropped calls, failure to initiate calls, unsolicited short messages (sms) and customer care issues.

In early May, this year, TCRA floated a tender number AE-020/2010-11/C/04 for the design, development and installation of a telecommunication traffic monitoring system under a build, operate and transfer (BOT) system.

The tender, whose deadline for submission of bids expires on 14 June 2012, states the objective of the assignment as to develop a system that will monitor international and local calls.

It enlists the functions to be performed by the said system as measuring the quality of service (QoS), establishing telecommunication traffic volume (interconnect and international inbound/outbound), ability to measure revenue/carrier access, billing information and mobile money transaction, ability to track, detect and block bypass/fraud traffic, ability to detect SIM card profile, as well as the ability to detect terminal equipment identification details.

The document also states that in developing the system TCRA will partner with the private company under private-public partnerships (PPPs) in order to design, develop and install the telecommunication traffic monitoring system that will resolve the above problems.

Makamba gave the example of Ghana whose regulators deployed a similar system in 2010 to monitor just international calls traffic in and out of Ghana, and within a year (in 2011) the country increased its revenue collection from telecoms operators by $40 million.