In the wake of discussions with major ICT stakeholders last month, the Communication Authority of Zambia (CAZ) has come up with a consolidated tax proposal for consideration by the Ministry of Finance and National Planning for the 2009 national budget.
According to proposal, growth in the ICT sector can only be stimulated by a reduction in the cost of doing business, specifically by cutting the import tax.
The proposed tax incentives are expected to lead to increased sales revenue and employment, thereby compensating for the lower taxes in the long run.
The CAZ has proposed tax incentives to speed the deployment of fiber optics, including zero-rated import and VAT (value-added tax) duties on fiber-optic materials for ICT infrastructure developers. Although the current 16.5 percent import tax is reclaimable, it imposes a serious liquidity problem on the financials of ICT infrastructure developers, the proposal states. In most cases, it explains, ICT infrastructure developers must wait for VAT refunds before embarking on other consignments, delaying deployment of fiber optics in the country.
In terms of VAT, the CAZ has proposed that roaming charges be exempt and that the duration for claiming VAT on invoices be increased to two to five years for telecom service providers.
In order to achieve growth in the cellular service market, the CAZ has proposed that the customs duty on SIM (Subscriber Identity Module) and recharge cards be reduced from 25 percent to 5 percent. The government increased the import duties on these items from 5 percent during the 2008 budgeting period, putting the mobile industry’s growth over the past seven years at risk, the proposal stated.
The regulator has also called for the reduction of the excise duty on airtime from 10 percent to 5 percent. According to the proposal, the government’s former increase of the excise duty on airtime was fully passed on to consumers, and a reduction would once again make airtime affordable. Although the government is expected to forgo some revenue from this tax measure, the foregone duty will eventually be recovered in corporate taxes from the increased volume of airtime sales, the proposal reads.
On non-tax revenue, the CAZ has proposed the removal of levies on diesel for ICT base stations, explaining that the country’s current electric power deficit coupled with a lack of investment in the electricity sector has led to the inability to connect rural communities to the electricity grid. The cost of diesel for running ICT base stations in rural parts of the country accounts for up to 50 percent of the total cost, and the current situation inhibits the rate of ICT expansion in Zambia.
To further aid rural areas in rolling out networks, the excise duty on ICT equipment such as communications masts, computers, handsets, and VSAT (very small aperture terminals) should be reduced from 15 percent to 5 percent, CAZ states.
The proposal recognizes that the tax base in Zambia is still small, but it states that the ICT sector currently contributes to one-fifth of Zambia’s gross domestic product, with the potential to contribute more as the sector grows.
