Looming tax on internet Calls: A Reflection

By Felix Mwenge and Miselo Bwalya

On 12th August 2018, the Government announced intentions to impose a tax on all internet voice calls citing the need to save jobs in the telecoms sector as the main reason. From the perspective of some members of the public,

the tax is simply a maneuver by a financially strained Government searching for new sources of income and has nothing to do with saving jobs.

We provide a snapshot of the job situation in the telecoms sector to establish the extent of job losses associated with use of internet voice calls. We also reflect on the issues surrounding internet voice call services at the global level to inform current local developments.

Zambia generally has high rates of unemployment. According to the Central Statistical Office, approximately 40% of the labor force is unemployed. This implies that, two in every five people do not work. In the telecoms sector the number of jobs has been declining and stood at 1,338 in 2017 compared to 1,422 in 2010. This represents a 6% reduction or 84 jobs in 7 years which is quite insignificant for the size of the sector.

Internet voice calls via Skype and WhatsApp belong to a group of services known as Over-the-Top (OTT) services. By design, OTT services are provided without the owners operating a physical network as they free-ride on existing service providers to reach customers. This means the owners of WhatsApp and Skype need not have physical presence such as offices, employees or network infrastructure in Zambia to operate. These types of services also tend to be more convenient and cost-effective thus offering fierce competition for traditional services such as ordinary calls and SMS. For example, most Zambians today prefer to use WhatsApp over SMS as it combines voice calls, text and other multi-media functionalities.

The increased use of OTT services potentially reduces the revenues of traditional telecoms service providers. Although it can be argued that the use of OTT services result in extra revenue from airtime and data purchases, the bulk of the revenue is captured by OTT providers and not telecoms. This phenomenon is of global concern. It is estimated that globally the traditional telecoms industry will lose a combined $386 billion between 2012 and 2018 due to consumer shifts to OTT services. Furthermore, as OTT service providers are not usually established locally they are not regulated nor taxed leading to missed revenue by the host Governments. It is this reduced and missed revenue by telecoms and Governments that may have a negative impact on job creation as firms may not expand.

With this background it is important to understand the extent to which OTT services are affecting operations of telecoms in Zambia. More specifically, are there job and revenue losses resulting from OTT services? Is the Government justified to impose the looming tax in the name of protecting jobs?

Interestingly, the revenues of telecoms in Zambia have actually doubled in the past six years, growing from K2.5 million in 2011 to K5 million in 2017. This is partly because of an ever increasing subscriber base which now stands at 13 million with cell phone penetration as high as 80%. As services continue to improve there is likely to be more subscribers and revenues are only likely to increase, all things being equal. From revenue perspective, therefore, there is no basis for fear by the traditional telecoms. Secondly, the telecoms industry in Zambia has only lost 84 direct jobs since 2011. The cause of these job losses is unknown and cannot be attributed to increases in the use of internet voice calls. Thus it is difficult to conclude that increased use of OTT services is already affecting jobs in Zambia right now. If the concern was about loss of indirect jobs through other avenues such as airtime vendors, there is very little possibility even there because consumers are still purchasing airtime to use for OTT services.

In a nutshell, while OTT services may threaten revenues of telecoms among other concerns, the common approach in many countries is to regulate the services and not tax users. Zambia is thus one of the few countries to have responded in this way. Given that revenues of telecoms have actually been rising in Zambia, there is no immediate concern to warrant a tax on consumers. The same applies for jobs. But even if the job losses were a result of OTT services, the industry needs to realize that as technology increases some jobs will be sacrificed for more capital- and technology-intensive services.

Based on this, the Government should not be fighting to keep jobs that are falling redundant due to technological advancements. Such fighting would be promoting inefficiency in a sector that is highly exposed to technological innovations. In our considered view, the Government would do better to rather focus on strategies to protect workers through such policies and programs as re-training, reskilling and redeployment of workers so that they continue to be relevant.
The authors are Research Fellows at the Zambia Institute for Policy Analysis and Research (ZIPAR).

The authors are researchers at the Zambia Institute for Policy Analysis and Research (ZIPAR). For details contact: The Executive Director, ZIPAR, corner of John Mbita and Nationalist roads, CSO Annex building, P.O. Box 50782, Lusaka. Telephone: +260 211 252559. Email: This email address is being protected from spambots. You need JavaScript enabled to view it..

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