Great news for smartphone prices in South Africa

South Africa will remove the 9% ad valorem tax from smartphones under R2,500 from 1 April 2025.

This is according to finance minister Enoch Godongwana’s budget speech on Wednesday afternoon.

In the South African context, the luxury tax or ad valorem is a tax on products deemed luxury items such as motor vehicles, electronic equipment, and cosmetics. A flat rate of 9% is applied to technology products.

The only exceptions to the ad valorem tax in the tech sector are PCs and computing components — like RAM, storage drives, and graphics cards — which are duty-free and exempt from luxury taxes.

Now that the ad valorem tax has been removed for lower-value smartphones, the effective tax rate on devices below R2,500 will be 15.5%, given that a VAT hike of 0.5 percentage points was announced during the same speech.

Communications minister Solly Malatsi has advocated for the removal of the tax since his first days in office last year.

This is part of a strategy to make it more affordable for people to switch to 4G and 5G devices, which would help migrate traffic off older 2G and 3G networks.

Once fewer South Africans relied on the legacy network technologies, the government and industry could decide on a deadline for switching off 2G and 3G, freeing up precious radio frequency spectrum for other uses.

“One of my obsessions is looking at the declassification of smart devices as luxury items because they carry an additional tax,” Malatsi told MyBroadband during an earlier interview.

Malatsi recently hosted a workshop in partnership with the World Bank and GSMA, a non-profit representing the interests of mobile network operators worldwide, to engage with market stakeholders about lowering the price of smartphones.

“We need to get smart devices in the hands of South Africans that face the barrier of connection,” Malatsi said during the opening statement of the workshop.

“We cannot discuss innovation, entrepreneurship and economic growth without addressing this fundamental issue.”

During the workshop, GSMA mentioned removing import levies from smartphones to decrease the final cost to customers, which was later echoed by mobile networks MTN and Vodacom.

The mobile networks also argued that encouraging local production would help combat the additional costs of imports caused by factors such as currency fluctuations.