High taxes driving up internet prices

Post was last updated: December 17, 2019

The latest Malawi Economic Monitor by the World Bank has cited high taxation as one of the major factors behind exorbitant internet charges in the country.

The Economic Monitor says Malawi’s entry-level broadband packages at 19 percent of per capita GDP are exorbitant than the 5.2 percent of per capita GDP in Uganda and two percent in Kenya.

“This is due to high taxation regimes in the telecom sector, which adversely impact penetration, services and profits.

“In Kenya, mobile specific taxes stand at an average rate of around 7.5 percent, compared to 9.5 percent in Malawi. The relative affordability of broadband in Kenya has led to significantly high penetration rates with the rate for 3G population coverage standing in excess of 85 percent,” reads the Economic Monitor.

It says Malawi needs to undertake significant policy, regulatory and fiscal reforms in order to realise digital dividends.

The World Bank notes that in Malawi, the lack of competition in critical telecom market segments restricts the growth of the sector.

It says the resulting lack of investment and competitive pressure on prices and quality has severely impacted ordinary consumers, the vast majority of whom access both voice and broadband services through mobile phones.

“Most services are provided by only two operators, which lead to high levels of market concentration. By comparison, lower market concentration in Uganda has led to lower end-user prices. By encouraging higher competition and new investments in the ICT sector, Malawi will be able to benefit from lower costs and increase in services.

“Service delivery in Malawi is also hampered by a severe infrastructure deficit, which limits opportunities for the delivery of high-quality ICT products and services. In particular, the national backbone and access networks need to be further reinforced to ensure a decentralisation of ICT opportunities,” the bank says.

According to the report, as it stands, international bandwidth per user in Malawi is 4.2 kilobits per second (kpbs). In similar landlocked countries, such as Rwanda and Uganda, international bandwidth per user is 7.45 and 5.41 kbps, respectively.

By contrast, in Kenya, which has access to a number of undersea cables, international bandwidth stands at 69.01 kbps per user.

The report notes that international evidence shows that increased access to and usage of ICT services can have a transformational economic impact on developing economies.

It says although the ICT sector in Malawi continues to grow, Malawi significantly lags behind its peers in terms of the development and affordability of telecommunications and other digital services.

The country, according to the World Bank, ranks in 167th place out of 176 countries in the International Telecommunications Union (ITU) ICT Development Index.

“The rate for mobile penetration stands at 41.3 percent, compared to the average rate of 74.4 percent across Africa. However, Malawi has the potential to leverage digital technologies to leapfrog and achieve its socio-economic objectives if it implements measures to promote affordability. Malawi’s neighbors are reaping digital dividends due to policies that promote affordability,” the bank says.

Finance Minister, Joseph Mwanamvekha, was not available for comment yesterday.

In his 2019/20 budget presentation, Mwanamvekha had introduced a 1 percent final withholding tax on non-bank mobile money transactions based on the transaction amount before he was forced to withdraw it after a deafening public outcry.

Mwanamvekha argued that the tax measure was aimed at ensuring that a large number of the citizenry are motivated to contribute toward national building through payment of taxes and ensure that Government has scope to improve service delivery.

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