The telco sector stands at a critical crossroads. Mobile and internet penetration, particularly in emerging markets, is touted as the cornerstone of economic progress. The digital revolution is in full swing, with mobile networks playing a crucial role in connecting millions to the internet. But for all the promise this sector holds, the heavy burden of taxes on telecom companies is stifling growth, hindering innovation, and slowing down the very digital transformation these countries need. To maximise the potential of mobile and internet services across Africa, fiscal reforms are not just a necessity, they are urgent.

The current tax burden on telcos

Telcos have long been the target of punitive taxes, a trend that is only intensifying. In many African countries, mobile network operators are subject to high levies on their revenue, services, and equipment imports. These taxes include service taxes, excise duties, VAT, and in some cases, a tax on SIM cards and handsets. While governments argue that these taxes are necessary to boost revenue, the reality is far more complex. Telcos are already balancing huge operating costs in the form of license fees, wayleaves, electricity costs among others.  The situation is even worse when the tax burden is not aligned with sector growth or innovation targets.

In 2023 alone, mobile telco taxes across Sub-Saharan Africa amounted to $2 billion, a sum that is expected to increase exponentially over the next decade if left unchecked. As of 2024, countries like Nigeria, Uganda, and Kenya are leading the pack, with tax rates on telco services in some cases surpassing 20%. This approach risks undermining the very foundation of the sector, particularly when mobile network operators are at the forefront of expanding access to digital services in rural and underserved communities.

The impact on investment and innovation

The excessive tax burden is increasingly becoming a roadblock to much-needed investment. The telco industry is capital-intensive, requiring significant upfront investment in infrastructure such as cell towers, data centres, and fibre optics. In Sub-Saharan Africa, where mobile internet penetration hovers at just 40%, bringing the next 30-40% of the population online will require billions in infrastructure investment. However, excessive taxes on operators—coupled with unpredictable regulatory changes—discourage foreign investors and stymie the ability of telcos to expand their networks.

The International Telecommunication Union (ITU) estimates that if current fiscal trends continue, Africa will need to invest an additional $100 billion in digital infrastructure to meet the UN’s SDG 9 – building resilient infrastructure, promoting sustainable industrialisation and fostering innovation. Without fiscal reforms, these investments will become increasingly difficult to secure, especially given that many telcos already face obstacles in securing capital for network expansion in the wake of regulatory uncertainty.

At the same time, the innovation required to push mobile broadband penetration to new heights is hindered by the fiscal squeeze. The introduction of 5G technology, for instance, promises to revolutionise industries, from health to agriculture, but requires massive infrastructure investments. Yet, telcos are finding themselves caught in a vicious cycle of high taxation, and unpredictable regulatory environments, leaving them with little financial room to reinvest in innovation or take risks in introducing new services. This hampers their ability to innovate, limiting the rollout of services that could bridge the digital divide and provide more access to digital tools across underserved populations.

The case for balanced fiscal reforms

The telco sector operates optimally in an environment that strikes a balance between achieving government revenue targets and fostering sustainable growth and innovation. Fiscal reforms should include a comprehensive review of the current tax regime to ensure it is not only fair but also supportive of long-term digital infrastructure development. Lower taxes, particularly on services like mobile data, would not only benefit telecom companies but also increase their ability to offer affordable mobile internet access to consumers.

A balanced tax system would also promote the extension of mobile broadband to rural areas, where mobile internet adoption rates are still lagging. The reality is that much of the new demand for mobile services in Africa is coming from rural communities, where average income levels are lower, and mobile internet services remain unaffordable. In countries such as Kenya, where 40% of the rural population has yet to access mobile internet, lowering taxes on mobile data usage could lower service costs, increasing access to digital services in these regions.

Furthermore, there is a growing need to embrace data-centric fiscal reforms that align with global trends. For instance, reducing taxes on mobile data usage can stimulate greater demand, improving economies of scale for mobile operators. This would make it easier for companies to scale their operations and introduce new digital services without facing a tax penalty at every stage of the process. Additionally, creating a more favorable tax environment could allow mobile operators to collaborate with global technology companies, fostering the type of public-private partnerships that could accelerate Africa’s digital agenda.

The urgent need for reforms

For the mobile internet sector to reach its full potential in Africa, fiscal reforms must be top of the agenda. The rapid pace of technological advancement means that Africa cannot afford to fall behind in the race to digitalise. Mobile internet is not just a luxury but a vital tool for economic development, education, healthcare, and financial inclusion.

Consider the statistics: Africa is home to over 1.4 billion people, with nearly 60% of the population unconnected to the internet. According to GSMA, by 2025, mobile internet could contribute as much as $170 billion to Africa’s GDP if the right investments are made. This presents an incredible opportunity for governments across the continent to create fiscal policies that allow telecom operators to lead the charge in improving digital inclusion, while simultaneously boosting economic growth. However, if the current fiscal climate persists, this potential will remain largely untapped.

In the long term, the growth of mobile broadband in Africa is inextricably linked to a forward-thinking tax policy. Striking the right balance between taxation, innovation, and infrastructure investment will ensure that the telco sector remains competitive, while contributing to the broader goals of economic growth and digital inclusion. It’s time for policymakers to understand that when mobile internet thrives, so too does the broader economy—and that requires fiscal policies that put growth first, not just revenue generation.

Conclusion

Africa’s digital transformation is too important to be held back by punitive taxation approaches. As the telco sector faces unprecedented pressure from both regulatory bodies and market forces, fiscal reforms are no longer a choice—they are a necessity. Governments across the continent must rethink their approach to telco taxation, focusing on striking a delicate balance between revenue generation and fostering an environment that allows mobile operators to thrive. Only then will Africa be able to bridge the digital divide and unlock the full potential of mobile internet to drive economic growth and innovation across the continent.