Sudan has scrapped a 30% profit tax on telecom operators until 2015-end, replacing it with a 2.5% levy on total income, the state news agency said, in a move that should help a sector hurt by the plunging value of the Sudanese pound.
Sudan had the highest sales tax on mobile in services in the Arab world, according to a September report by Arab Advisors Group, deterring investment in what is a vital industry for a country still reeling from South Sudan’s succession that led to the loss of three-quarters of Khartoum’s oil output.
Sudan’s decision, announced via the official Sudan News Agency (SUNA), reverses a government tax increase in December 2011, which raised sales taxes on telecoms companies to 30% from 20% and a profit tax to 30% from 15%.
It is unclear whether the new 2.5% tax on total income is in addition to, or replaces, the sales tax.
Sudan’s three mobile operators - Zain Sudan, a fully-owned subsidiary of Kuwait’s Zain, state-owned Sudani and South Africa's MTN - typically buy equipment in hard currency such as dollars or euros, so the pound’s plunge has upped expenditure at a time when average revenue peruser (ARPU) - a key industry metric - is in retreat.
A Zain spokesman said the profit tax exemption would be backdated to Jan. 1, 2013.
Sudan’s mobile penetration was 58% in 2011, ranking it 159th globally according to data from the International Telecommunication Union, and there remains plenty of room for growth, although that could require operators to expand and improve their networks to reach unconnected residents.
Zain is the market leader with a 52% share of Sudan’s mobile subscribers, according to its first-quarter results, while South Africa’s MTN and state-owned Sudani each had 24%.
In the first quarter, Zain Sudan’s net profit fell 26% to $38 million and revenue dropped 41% to $154 million.
Zain blamed these declines on the plunging value of the Sudanese pound - in local currency terms Zain’s profit and revenue actually rose 25% and 58% respectively in the first quarter.
Zain is unable to hedge against the pound, while a shortage of dollars means the company has struggled to repatriate earnings to Kuwait.
Sudan’s currency fell near to a record low against the dollar on the black market this month after Khartoum threatened to halt cross-border oil flows with South Sudan.
The pound has more than halved in value since South Sudan became independent in July 2011. Oil was the driver of Sudan’s economy and a source of dollars needed for imports.
The Sudanese pound’s exchange rate against the dollar has fallen to 7.1, down from 6.8, black market dealers said. The central bank rate is around 4.4.
MTN, which owns an 85 percent stake in MTN Sudan, said the unit’s revenue in 2012 was 2.16 billion rand ($217.1 million), up 11% from a year earlier as its subscriber base rose by nearly a third to 7.9 million, although APRU fell to $3.2 last year from $4.5 in 2011. It did not provide a net profit figure.
It also said vendor financing and current accounts in Sudan resulted in a foreign exchange loss of 373 million rand.