Tax Cut On Basic Smartphones Will Make Little Difference
The announcement by treasury of a move championed by communications minister Solly Malatsi, aims to lower the cost of accessing 4G-capable devices at the lower end of the market ahead of the planned shutdown of 2G and 3G networks in the coming years.
The telecommunications industry applauded the announcement, with the Association of Comms Technology - the industry lobby group representing South Africa's largest network operators - describing it as a 'significant step forward in driving digital inclusion - especially for those in low-income households".
But just how much of a difference will the 9 cut in ad valorem duties make to the price of a device costing R2 500 or less? It turns out that the answer is not terribly much.
"The reality is that the removal of 9 does not make it possible for the poor to afford smartphones," Olebogeng Ramatlhodi, indirect tax leader at Deloitte South Africa, told TechCentral. "You need to remove VAT from the equation, but even that doesn't even go far enough, so you probably need an incentive, too."
Phone 1 Phone 2 Phone 3 Phone 4 Import price R1 500 R2 000 R2 500 R3 000 Ad valorem duty 9 R135 R180 R225 R270 Assumed margin at 10 R150 R200 R250 R300 Domestic VAT at 15 R267.75 R357 R446.25 R535.50 Total cost R2 053 R2 737 R3 421 R4 106Although removing the ad valorem duty has the effect of lowering the total cost of a device - by R135 for a R1 500 phone and R225 for one costing R2 500 - it is the VAT component of the calculation that represents the most significant tax on smartphones. VAT amounts to R268 for a R1 500 device, R357 for a R2 000 device and just under R450 for at the R2 500 price point. These VAT amounts are calculated after ad valorem duties and margins have been factored into the price.