Zambia has become the first country in the southern African region to suspend all taxes imposed on the importation of communication equipment, allowing mobile operators to import equipment free.
Over the past few years, operators have been pushing the Zambian government to give them tax holidays in order to enable them to expand their networks to remote areas. The tax holiday is expected to stimulate growth of the telecom sector dominated by three operators -- Airtel, MTN and Zamtel.
As in other countries in the region, operators have been slow to roll out their networks to rural areas, claiming they were paying too many taxes for telecom equipment, which raised the cost of doing business in the country. Rural areas are considered by operators as not viable economically to recoup the investment.
Initially, the Zambian government refused to give tax holidays to operators, saying they were making enough profit from subscribers to enable the rollout of their networks. In addition, the Zambian government raised taxes by 5 percent on any telecom company whose profit was above US$54,000, on top of the current standard company rate tax of 35 percent.
Operators said, however, that although the new tax addressed the Zambian government's revenue concern, the tax increase had a long-term effect on sector growth as it would slow down network construction and thwart attempts to cut the high cost of communication in the region.
Surprisingly, the Zambian government suspended all taxes imposed on telecom equipment being imported by operators in Zambia. The bylaw that suspended the tax does not, however, say long the tax holiday will last.
The Zambia Chambers of Commerce and Industry (ZACCI) said the measure would accelerate tele-density across the country.
"It is most likely that development will follow as we shall see accelerated mobile network rollout especially in rural areas," said ZACCI president Geoffrey Sakulanda in a statement last week.
So far, the operators have remained tight-lipped on the suspension of taxes on telecom equipment by the Zambian government.
But the Computer Society of Zambia (CSZ) said competition among operators is expected to heighten as all operators will now be able to afford to quickly roll out their networks to most areas in rural parts of the country still unconnected to mobile communication.
"What we expect now is a fight for customers by operators as each of them will be able to roll out network across the country," said Amos Kalunga, a telecom analyst from CSZ, in a telephone interview.
The Zambian government has refused to issue a fourth mobile license claiming it is creating a conducive environment that will allow the three operators to compete favorably and bring down the high cost of communication in the country.