What sim card taxation entails in the economic perspective

Honest Ngowi 

By Dr Honest Ngowi 

In Summary

• Among those who have aired dissatisfaction with the new tax include the telecom industry companies as well as many citizens.

Among the major discussion issues this month in Tanzania include the government’s decision to introduce a Sh1,000 monthly tax for each mobile phone sim card in use. Among those who have aired dissatisfaction with the new tax include the telecom industry companies as well as many citizens.

The issue is so big that, according to sections of the media, it reached the State House. Some economic perspectives on the said tax are outlined in this article.

Why taxation?

Taxation is among the major sources of funds needed to finance public goods and services in many countries. In Tanzania, tax revenues account for up to 50 per cent of the government budget while in some countries it covers up to 90 per cent.

So long as people need the government to provide the needed quantity and quality of public goods and services, payment of taxes is inevitable. Otherwise, the government has to borrow and depend on aid.

These two options have many and far-reaching negative implications to the economy. Knowing why tax is important as most Tanzanians are supposed to, one wonders why people would give a big no to paying Sh1,000 per month or Sh33.3 per day which on its face value does not seem to be huge amount of money. Some possible explanations are given below as part of contribution to resolving the controversy.

It is a regressive tax

The tax is regressive as opposed to progressive tax. With regressive tax, the same amount (Sh1,000 per month per sim card) will be paid by anyone who owns a sim card, his or her income level notwithstanding. Billionaires, millionaires and the poorest of the poor will pay the same amount. It is worth noting that not everyone who owns a sim card has income.

There are individuals who make some transfer payments to some sim card users. The ‘opposition’ to the tax could be reduced if it was made to be progressive rather than regressive. A country with many tax experts as Tanzania does should be able to make such turn around.

Highest tax rate ever?

The tax can be among the highest tax rates in many jurisdictions. This is because the sim card is sold at Sh1,000. With a Sh1000 tax per month imposed on it, it translates to Sh12,000 annual tax. This is equal to annual tax rate of 1,200 per cent of the buying cost of the sim card.

This is arguably among the highest annual tax rates not only in Tanzania but also across the globe.