Mobiles for taxation in Africa?

Very interesting commentary from the ICTs for Development blog:

(please also read in parallel this review of data that suggest mobiles may also impoverish populations in Africa)

Mick Moore’s argument (e.g. in the book, “Taxation and State-Building in Developing Countries”: you can find on Google books) that state-building in developing countries is significantly undermined because governments don’t rely very much – if at all – on their citizens for taxes; as a result, governments find it easy to ignore citizens when making policy.

Mobile telephony could be changing this, albeit in an unplanned and as yet largely unrecognised way. How? Because mobile phone operators are key, and rapidly growing, contributors of tax revenues to government. They average 7% of tax receipts in Africa and, in some countries, are the single largest tax payer.

More importantly, and almost uniquely among tax sources (compared, say, to customs revenue or taxes on natural resource extraction), mobile phone companies derive their revenue from a large and increasing mass of the citizenry of a country (around 30% of the cost of mobile phone ownership goes to pay tax). They are, therefore, indirectly providing the tax connection between citizens and governments in developing countries, the absence of which Mick Moore and others have long lamented.

Previously, if governments wanted to raise or lower the tax burden on their citizens, they had few if any levers. Now they do. Assuming a competitive mobile market, changes in the tax burden on phone companies will directly affect large swathes of a country’s population. Raise taxes on mobile operators: you extract more money from millions of citizens. Lower taxes for the reverse effect.

The fiscal flipside could also apply. Katharine Vincent and Nick Freeland are working on a social protection project in Lesotho. Cash transfers to the poor are an increasingly-popular social protection tool to address poverty and wider vulnerabilities. However, delivery mechanisms are difficult. One possible solution? Get government to outsource delivery of the cash/credit to mobile operators, who would effect the transfer via mobiles. Mobile operators would thus be implementing government spending policy.”

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