the surtax on international inbound calls

A FRICA L AW T ODAY , Volume 4, Issue 3 (2012)
THE SURTAX ON INTERNATIONAL INBOUND CALLS TERMINATION IN AFRICA
Rémy Fekete*
The surtax on international incoming traffic ("SIIT") is a very appealing source of
income for African governments. Originating in telephone calls made by non-residents, the tax
fuels African countries' budgets without directly burdening the local purchasing power.
The SIIT is a tax deducted from the sales income made by local carriers when
"terminating" international inbound traffic, that is, when carrying international phone calls from
the international gateway to the end-user's receiver.
As usual when a service is subject to taxation, circumventing strategies aiming at escaping
the tax were invented. In an attempt to restrain fraud and maximize their tax income, many
African governments chose to entrust the control of the SIIT collection to private companies.
Such third-party control operators (hereafter "TPCOs") install fraud management and traffic
monitoring equipment on the local operators' systems, enabling the regulatory authorities to
detect fraud and to accurately gauge the importance of inbound traffic for further tax collection.
The main TPCO in Africa is Global Voice Group (Guinea, Congo Brazzaville, Central African
Republic, Senegal), but we can also mention Agilis International (Malawi) and Xintec (Ghana),
among others. As a compensation for the services rendered, the TPCO cashes a substantial
percentage of the tax, sometimes approaching a 50% of the amount levied (rates observed in
Guinea and Senegal).
Such a tax collection model raises important questions in terms of governance and
efficiency, inviting us to draw a balance of the pros and cons of the SIIT as implemented in
Africa in the past few years.
I.
IMPLEMENTATION
The same SIIT implementation scheme is observed in many African countries. Typically,
the Government imposes a fixed price for inbound calls termination to local carriers, who
cannot invoice a lower price to their international counterparts. Such mandatory price includes
the local carrier's costs and profits, the TPCO's compensation and the State's final tax income. In
most cases, the compulsory termination prices are far above the market prices previously
applied. The TPCO installs surveillance platforms calculating the number of international
minutes terminated within the country. The TPCO then informs the Government, who levies
the local operators accordingly and remits its share to the TPCO.
According to data reported by Deloitte,1 in Senegal, where the SIIT was introduced in
2010, the price set by the Government (0,21€/minute) more than doubled the price previously
*
Rémy Fekete is a managing partner at Paris-based international law firm Gide, Loyrette, Nouel,
A.A.R.P.I. He is one of the partners in charge of the Media, IT & Telecommunications
international practice group. He assists many television and radio broadcasting companies, cable,
satellite and ADSL distributors; telecoms operators and suppliers of value-added services. In his
practice he has acquired extensive and widely acknowledged experience in information and
communication technologies. He is sought after by some forty governments and regulatory bodies
around the world for his expertise in these fields and is involved in major international dispute
resolutions. According to Chambers, "Sources say telecoms partner Rémy Fekete has “amazing
knowledge of regulatory issues in Africa and in France.” Interviewees are quick to highlight his
international experience along with his precision and high-quality advice." He can be contacted at
[email protected].
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A FRICA L AW T ODAY , Volume 4, Issue 3 (2012)
applied to termination on landline phones. The Government shares (50/50) with TPCO Global
Voice Group a third (mobiles) to a half (landlines) of such price. In Ghana, termination prices
raised between 46% and 73% with the introduction of the SIIT in June of 2010. Just like in
Senegal, the Government shares evenly with the TPCO approximately a third of such price. In
Congo Brazzaville, termination prices more than doubled in June of 2009 (0,20€/minute), and
the government shares with the TPCO a half of such price.
In Gabon, where the surtax was re-introduced in August 2011, the Government shares
with the TPCO more than a half of the 0,20€ set as the mandatory termination price per minute
(However, the Ecofin agency announced in October of 2011 the cancellation of the SIIT).2 In
Malawi, a different system is currently being set, with only a small portion (approximately 5%) of
the income made by local operators attributed to TPCO Agilis International. Mauritania also
adopted the surtax in 2010-2011, with a fixed price of 0,22€/minute, 8 cents of which are
allocated to the government (and the TPCO). Finally, Liberia is currently working on a draft
regulation introducing a SIIT, with a set price that should more than double the currently applied
market price for international traffic termination.3
A few countries however have decided to suppress the SIIT. Ivory Coast, one of the first
countries to experience the tax in 2009, suspended it a few months later, reacting favorably to
the strong mobilization of local operators. In Burkina Faso, the SIIT instituted in 2010 was
never applied: according to the Telecom Ministry of Transport, Posts and Digital Economy,4 the
current status is that the government is now waiting for the results of pending reports on the
matter by the regional economic organizations, West African Economic and Monetary Union
(WAEMU) and Economic Community Of West African States (ECOWAS).
II.
SHORT TERM BENEFITS
A) Immediate Effect on Tax Income
The main objective of the SIIT is to generate new income for the States. According to
the recent study ordered by GSMA to Deloitte concerning the effects of the SIIT in four African
countries, it is undeniable that the introduction of the tax mechanically produces an immediate
marginal growth of the States' tax income. For instance, the monthly income deriving from the
tax in Senegal and directly adding to the State's budget reaches 3,8 million €, and in Ghana, the
monthly tax income for the State is 3,4 million €.
Subject to good governance and a correct use of public funds, the levies collected are
expected to bring public benefits, as the products of the tax are usually intended to be reinvested
1
2
3
4
Study by Deloitte for the GSMA, Mobile taxation: Surtaxes on international incoming traffic, Sept. 26,
2011, available at http://www.gsma.com/publicpolicy/wpcontent/uploads/2012/03/mobiletaxationsurchargesoninternationalincomingtraffic.pdf
Agence Ecofin, Le Gabon abroge sa mesure de 2009 sur la surtaxe des appels entrants, (Gabon repeals its
2009 inbound calls taxation rule), www.agenceecofin.com (Oct. 15, 2011),
http://www.agenceecofin.com/gestion-publique/1510-1752-le-gabon-abroge-sa-mesure-de-2009sur-la-surtaxe-des-appels-entrants.
Taxing international inbound calls: is there a middle way between fleecing consumers and monitoring international
voice traffic transparently?, BALANCING ACT, Issue n°590, Feb. 3, 2012, available at
http://www.balancingact-africa.com/news/en/issue-no-590/top-story/taxing-international/en
Saidou Yanogo, Director General of Telecom Ministry of Transport, Posts and Digital Economy,
Overview of Telecommunications Sector Taxation in Burkina Faso, Presentation at ITU Workshop on
Taxation of Telecommunication Services and Related Products (Geneva, Switzerland, Sept. 1st /2nd, 2011 ),
available at http://www.itu.int/ITU-D/finance/work-cost-tariffs/events/tariffseminars/Geneva_Taxation/pdf/Yanogo-BurkinaFaso-en.pdf
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A FRICA L AW T ODAY , Volume 4, Issue 3 (2012)
in public welfare projects, such as funding social housing projects, providing water and electricity
equipment, and promoting access to internet and communication technologies in rural areas.
B) Anti-Fraud Equipment
Rampant fraud in telecommunications is a major plague African Governments are
constantly striving to deter. In particular, a widespread fraudulent practice observed in Africa is
the so-called "by-pass fraud", also known as "illegal SIM box fraud." It consists in wrongfully
channeling international calls away from their regular route when they hit the national networks,
making them appear as local calls on the local operators' systems, thus enjoying dramatically
reduced prices for international call termination. Such fraud not only causes operators to loose
revenues and experience congestion problems on their local networks: it also deprives
governments from valuable tax income.
Although it will be explained below how the SIIT may actually have an encouraging,
rather than deterring effect on fraud, it must be acknowledged that the technology platforms
installed by TPCOs are technically satisfactory and allowed the detection of a fair number of
fraudulent lines. For example, in Ghana, the Ministry of Telecommunications publicly
announced that 59 180 fraudulent mobile phone lines were detected between March and
December 2010.5
Despite the immediate benefits of the SIIT, a more thorough look at the big picture in
the long run unveils its counter-productive and potentially devastating effects, not only within
the mere telecommunications sector, but also in terms of national wealth and sovereignty.
III.
LONG TERM POTENTIALLY DEVASTATING EFFECTS
A) Incentive for Massive Fraud and Development of Alternative Means of Communication
Although the equipment installed by the TPCOs proved their efficiency, it nevertheless
cannot be asserted that the fraud management measures accompanying the SIIT have a deterrent
effect on fraud. In fact, quite the opposite is observed. Operators have witnessed a spectacular
development of fraud after the introduction of the SIIT, with an expanding "grey market", in
which unlicensed "operators" buy cheap minutes on the local markets and re-sell them on the
international market, using VOIP technologies.6
B) A Traffic-Burdening Pressure on Prices, Causing a Tax Income Decrease
As explained before, most countries in Africa have paired the introduction of the SIIT
with impressively high mandatory rates. The first effect of such prices is the cancellation of the
benefits reached with the virtuous liberalization cycle engaged in African telecommunications in
the nineties. Such liberalization led to lower prices, with the corresponding traffic growth. The
current trend is opposite: traffic drops while prices increase.7 In the long run, the traffic5
6
7
Announcement reported in Subex Telecom Fraud Alerts (Jan. 2011), available at
http://www.subex.com/pdf/subex-Telecom-Fraud-Alerts-January-2011.pdf
Sonatel, Problématique du trafic international entrant: le cas du Sénégal (International inbound traffic issues: a
case study of Senegal), presentation at the ITU, Geneva, Switzerland, Aug. 11, 2009, available at
http://www.itu.int/ITU-D/finance/work-cost-tariffs/events/tariffseminars/Geneva_Taxation/pdf/SaliouToure-Sonatel-e.pdf
Senegalese incumbent operator SONATEL reports a traffic decrease of 14% in the five months
following the introduction of the SIIT in 2010 (Source: see note 4) and a 25% decrease in five
months in 2011 (Source: www.osiris.sn, Feb.18, 2012, available at http://www.osiris.sn/CheikhTidiane-Mbaye-sur-la,7740.html)
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burdening effect of exaggeratedly inflated prices for international communications will result in
lower tax revenues than expected.
The second effect of imposed tariffs is an increase of outbound calls prices due to
reciprocity. Soon after the introduction of the SIIT in a country, the foreign operators
reciprocate by increasing their own incoming calls termination prices8 (such effect was pointed
out in the "Second Declaration of Dakar" signed on February 17, 2012 by a group of WestAfrican incumbent operators advocating against the surtax). Thus, by a disastrous mirroring
effect, the SIIT burdens not only the traffic entering the African countries applying the surtax,
but also the outbound traffic from these countries, eventually affecting other countries - many
times African neighboring countries - with intensive traffic towards and from the country initially
imposing the SIIT.
C) Negative Effect on Economic Wealth in Africa
This last aspect on reciprocation is particularly important when one considers the volume
of intra-African telephone traffic. According to Deloitte,9 60% to 80% of international outbound
calls made from African countries go to other African countries. Yet, tariffs for intra-African
calls are significantly superior to the prices for calls towards the rest of the world10! At the end of
the day, the first victims of skyrocketing prices for international calls are Africans themselves.
Considering the importance of telecommunications in economic development, this issue is
critical.
IV.
QUESTIONING THE LEGALITY OF THE TAX
The SIIT may be incompatible with international, regional and national legal provisions
applicable in Africa.
A) International Treaties
The International Telecommunication Union (ITU)'s International Telecommunication
Regulations signed in Melbourne in 198811 provide that taxes levied on international
telecommunication services shall be collected only in respect of services billed to customers in that
country (article 6.1.3). The SIIT, directly affecting foreign callers, does not seem to comply with
such provision.
Furthermore, both WTO's General Agreement on Trade in Services (1998) and the ITU
Recommendation D.140 (2002) require public telecommunication prices to be cost oriented. When
Governments impose artificially inflated prices for inbound calls termination, they do not follow
the ITU's cost-based pricing guidelines.
B) Regional Conventions
8
9
10
11
(opus cit.) Taxing international inbound calls: is there a middle way between fleecing consumers and monitoring
international voice traffic transparently?, BALANCING ACT, Issue n°590, Feb.3, 2012
(opus cit.) Study by Deloitte for the GSMA, Mobile Taxation: Surtaxes on International Incoming Traffic,
Sept. 26, 2011.
West African Telecommunications Conference (WATC, also known as CTOA in French),
Déclaration n°2 de Dakar, final statement of the conference's meeting in Dakar, Senegal, Feb. 17,
2012.
Final Acts of the World Administrative Telegraph and Telephone Conference, Melbourne, 1988
(ITU) available at
http://www.itu.int/en/history/administrativeconferences/Pages/1988Melbourne.aspx.
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A FRICA L AW T ODAY , Volume 4, Issue 3 (2012)
A dozen of West African telecom operators jointly issued the First and Second "Dakar
Declarations,"12 urging their respective Governments to immediately suspend the SIIT, based on
its international and regional illegality. The Second Dakar Declaration invited WAEMU and
ECOWAS to properly enforce the regional conventions applicable in Africa. Indeed, opponents
to the SIIT assert that the tax, as currently implemented, neither complies with ECOWAS
Supplementary Act A/SA.3/01/07 on the Legal Regime applicable to Network Operators and
Service Providers (2007)13 nor with WAEMU Directive n°05/97/CM on Budget Laws.14
C) National Texts
In most African countries, the law and the licensed operators' specifications provide that
telecommunications regulatory authorities have an exclusive power to sanction operators who do
not adequately control their networks against fraud. Local operators hence argue that no private
company should be authorized to exercise control over their networks. In Malawi, a campaign
against the "spy machine" was orchestrated by local operators in 2011.15
The grant of surveillance powers to the TPCOs is also sometimes challenged on the
ground of public contract procurement laws. For example, in Senegal, the first contract signed by
the telecommunications regulatory authority (ARTP) with Global Voice Group was cancelled in
2010 because no proper public tendering process had been carried out.16
V.
CONCLUSION: THE SIIT, A DANGEROUS LOSS OF SOVEREIGNTY
By delegating the power to control tax collection to a private company pocketing half the
sums levied with the SIIT, African countries are giving up a part of their sovereignty.
Governments justify such relinquishment by claiming they do not possess the infrastructure and
knowledge required to correctly handle the missions entrusted to the TPCOs. It seems
nevertheless that the real problem explaining this loss of national sovereignty is the lack of good
governance many African countries still suffer from. This causes services that should be ensured
by public regulatory authorities to be offered by private companies at a dramatically high cost. In
other words, TPCOs may just be occupying a space that should not have been left empty by the
States.
12
13
14
15
16
West African Telecommunications Conference, communiqués issued on November 25, 2010
(Déclaration de Dakar) and February 17, 2012 (Déclaration n°2 de Dakar) in Dakar, Senegal
See http://www.itu.int/ITU-D/projects/ITU_EC_ACP/hipssa/documents-ecowas.html
Available at http://www.droit-afrique.com/images/textes/Afrique_Ouest/UEMOA%20%20Directive%20lois%20de%20finances.pdf.
Mabvuto Banda Nation, Spy Machine: What Macra is Not Saying, MALAWITODAY.COM (Oct. 29,
2011), available at http://www.malawitoday.com/news/75239-spy-machine-what-macra-not-saying.
AMTP's decision n°127/10/1rmp/Crd of September 15, 2010, available at
http://smtp.osiris.sn/Decision-no-127-10-ARMP-CRD-du-15.html.
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