Good news about tariffs on smartphones in South Africa

While the South African government has yet to receive applications to amend tariffs on digital device imports, it would consider tariff support to protect a local manufacturing industry, should one start.

This is according to the Minister of Trade, Industry, and Competition, Parks Tau, who replied to a Parliamentary Q&A regarding tariff amendments of digital devices in South Africa.

Tau said these amendments are brought about by applications to the International Trade Administration Commission (ITAC), which the state entity then investigates.

Despite not receiving any applications for trade barriers to protect local manufacturing, Tau says the Department of Trade, Industry, and Competition (DTIC) and ITAC have discussed the potential of such tariffs.

“The ITAC and DTIC have had some discussions with the necessary line department to better understand the scale and scope of device manufacturing capability,” Tau said.

“It was also discussed where it is desirable to extend tariff support to incubate and grow these capabilities. We remain favourably disposed to doing so.”

However, the question posed to Tau concerned the promotion of access to information by challenging the import duties of digital devices within the telecommunications sector.

South Africa’s cellular device manufacturing industry is still in its infancy, with only one local assembler, Mobicel, launched 17 years ago.

Vodacom recently told MyBroadband that roughly 5% of all smartphone sales are assembled in South Africa.

Mara Phones tried its luck in South Africa by setting up manufacturing operations in 2019, but soon abandoned ship due to low demand.

Therefore, the industry has not yet received tariff support. Instead, taxes on device imports have been challenged to lower prices and improve access to new cellular technologies.

The duty currently in the firing line is ad valorem, which is applied to imports deemed luxury goods, such as sports cars or smartphones.

Ad valorem is Latin for “based on value.” In South Africa, a flat rate of 9% is applied to technology products.

Communications and Digital Technologies Minister Solly Malatsi has advocated for removing the ad valorem duty on smartphones since his first day 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.

This is in addition to the economic benefits Malatsi foresees from the increased access to smart devices and the digital economy for low-income South Africans.

The budget breakthrough

The first indication that ad valorem would be removed for specific cellular devices came moments before Finance Minister Enoch Godongwana attempted to present his budget speech.

In the build-up to the speech, a South African Revenue Services (Sars) document which stated ad valorem would be scrapped for cheaper smartphones leaked online.

However, the Parliamentary proceedings were soon adjourned because President Cyril Ramaphosa’s cabinet couldn’t agree on the budget.

This was because Godongwana was about to propose a VAT increase from 15% to 17%, which lacked political support.

Rather than present a budget that would be voted down, the parties in the Government of National Unity (GNU) agreed to delay the Budget Speech until they could reach a more mutually acceptable solution.

Upon the presentation of the second budget in early March, it was announced that ad valorem would be removed from smartphones under R2,500 as of 1 April.

However, Godongwana’s second budget included a 0.5% VAT hike for the financial year, again sparking controversy within the GNU.

This eventually led to the reversal of the VAT hike meant to take effect on 1 May, with Godongwana promising to table a new budget.

The fact that the budget is yet to be agreed upon means that the scrapping of the ad valorem duty on smartphones below R2,500 is yet to take effect.