Governments are being urged to help rebalance the digital ecosystem and create fairer business conditions, such as removing sector-specific regulatory, fiscal requirements, and to rationalise tax structures.

The plea comes from the GSM Association (GSMA), a global industry body of mobile network operators, which says policies and regulations should be based on internationally accepted principles.

The GSMA released a report this week, entitled ‘The Mobile Economy 2023’. The report notes telecoms infrastructure serves as the foundation of all modern digital economies, and plays a crucial role in helping governments, at both national and transnational levels, to achieve economic growth, digital inclusion, social mobility and environmental objectives.

To this end, GSMA says: ‘Policymakers should take actions that can help to rebalance the digital ecosystem and create fairer business conditions, such as removing sector-specific regulatory and fiscal requirements, combined with removing market imbalances along the digital value chain.

‘They should also rationalise tax structures based on internationally accepted principles and consider the balance effects (innovation, investment and price) of mergers on dynamic competition’.

African relevance

For Africa, the call to action by the GSMA comes on the back of recent tax squabbles involving two on the continent’s biggest mobile companies, MTN Group and Vodacom.

Earlier this year, MTN, which has over 285 million subscribers, was at odds with Ghana’s Revenue Authority over an $773 million tax claim, the matter was subsequently withdrawn last month after ‘extensive and productive discussions’, the telco told shareholders.

Similalry, Vodacom, which has presence in seven countries, is readying for a face-off with Congolese tax authorities over an $165 million auditing variation that could plunge the mobile operator’s operations in that country into turmoil.

Supporting the GSMA call to action on policies and tax structures, analysts say there is a need to spruce up the regulatory environment as some governments are overburdening telcos with special taxes.

Peter Takaendesa, head of equities at Mergence Investment Managers, explains the dilemma facing telcos on the taxes. He says: “Many African governments are increasingly coming under pressure from limited revenue growth compared to the growth of their actual spending budgets, thereby putting pressure on their currencies as deficits grow and investors demand a higher margin of safety when lending money to those countries.

“It is therefore becoming difficult to fix these problems by cutting government spending in such an environment, so some governments are resorting to unusual approaches of trying to back-date tax calculation methods or interpretation of laws.

“Investors know most of the challenges in Africa and that effective tax rates are higher after considering many other services that they have to self-provide, while those are provided by governments in other more mature regions, but that is not the major issue for investors.”

The key issue, he says, is policies that are unpredictable, applied retrospectively and in some case enforcement that “appears entirely unfair such as changing tax calculation methodology long after the assessment period or changing the interpretation of laws just to plug government revenue holes.”

According to Takaendesa, it is better for governments to focus on future looking tax law changes that widen the net to include new revenue streams than the backward looking approach which causes high levels of uncertainty.

“Most of the leading telecoms companies operating in Africa are still quite profitable and investors still find the long term growth opportunity attractive, but this will change at some stage and investors’ tolerance levels will significantly reduce if the government policy risks start to outweigh the potential returns of investing in some countries.

“Many international companies have already left some countries and there is growing risk that more will leave over the next decade if some of these policy and infrastructure challenges continue to move in the wrong direction.”