Smartphone sales slowdown in Tanzania sparks debate over VAT removal

Dar es Salaam. With the latest report from the telecommunications regulator showing that there has been a slowdown in the adoption of internet devices, particularly smartphones, traders are now proposing that the government should lift the 18 percent VAT on the products.

The Tanzania Communications Regulatory Authority (TCRA) says in its report for the third quarter of 2023 that the number of internet users reached 35.8 million in Tanzania in 2023.

However, the smartphone penetration rate increased by a slight margin, reaching 32.13 percent in December 2023.

Traders, who spoke to The Citizen, say the government needs to reduce taxes and remove the 18 percent VAT on smartphones to make the devices accessible to a majority of the population.

“I usually import these devices from agents, and what I know is that these agents impose high taxes when you want to import them,” said Linus Furahisha, a smartphone and accessories trader at Makumbusho, Dar es Salaam.

Mr Baraka Abdul, who imports smartphone devices from China and Dubai to Kariakoo, echoed similar sentiments, noting however that traders were also equally to blame for the challenge.

He said when the government removed VAT, many traders used to transport their smartphones through the airport.

However, after the reinstatement of the VAT, they (traders) also changed the system and started relying on agents. “All we know is that we are doing fine with smartphone sales, so maybe there could be a challenge with the availability of actual data somewhere,” he said.

Mr Baraka further added that he doesn’t believe taxes hurt phone sellers to that extent because the taxes have always been there and the situation remains the same.

The issue regarding taxes was also raised by Twaha Rashidi, a stakeholder. But the government says it decided to reinstate the VAT after realising that its removal in the past did not result in a drop in the price of smartphones.

“The government had very good intentions for its citizens, but some business people took advantage of this opportunity to enrich themselves. As such, the government decided to reinstate the VAT because, by removing it, we lost about Sh32 billion in taxes that could be used to develop the country,” said the head of the government communication unit and spokesperson for Finance, Mr Benny Mwaipaja.

He further added that the government has already sat down with mobile operators in the country to discuss importing smartphones and selling them.

“Mobile operators have proposed coming together to import these smartphones so that they can sell them in the country at lower prices, but also our concern is to make sure that, even if they choose, it’s important that they can give these users equal access to buying these smartphones without looking at their brand customers,” he explained.

As we approach this year’s budget, Mr Benny has stated that the government is prepared to meet with trade leaders to listen to their suggestions to see what positive changes can be made to ensure that every citizen can buy and own a smartphone.

In the budget for the year 2021/22, the government implemented a tax exemption on the importation of smartphones to ensure that by the year 2025, the country reaches 80 percent ownership and usage of smartphones among its citizens.

However, due to the challenges of dishonest business practices in the budget for the year 2022/23, the government decided to revoke that exemption.