Malatsi's smartphone tax break gets a mixed reception

Daily Maverick

30-04-2025

Communications Minister Solly Malatsi's flagship initiative to waive the 9% ad valorem excise duty on smartphones costing less than R2,500 has industry players divided on whether it's a good idea.
'Affordability remains one of the biggest barriers to digital access, especially for low-income households,' the minister of communications and digital technologies, Solly Malatsi, declared at the 45th Southern Africa Telecommunications Association annual conference. He also proclaimed, once again, that 'the South African government has removed the 9% ad valorem excise duty on smartphones priced below R2,500'.
The policy targets entry-level smartphones that predominantly offer 4G connectivity — a critical step in South Africa's transition away from 2G and 3G networks. With 87% 4G coverage in the country, the government has identified affordability, not infrastructure, as the primary obstacle to universal connectivity.
The digital economy's contribution has reached 10% to 15% of South Africa's GDP, resulting in Malatsi framing smartphone access as 'a gateway to economic opportunity' that could expand participation in education, e-commerce and government services.
Enthusiasm, meet scepticism
The initiative has exposed a stark divide among industry stakeholders. Samsung, the biggest smartphone vendor in SA by value (and mostly volume, depending on how the market is sliced), can see the vision, but doesn't agree with the method.
Justin Hume, Samsung South Africa vice-president of mobile, sees particular potential in mid-tier devices such as the Galaxy A16, which the company will now reduce from about R4,000 to R3,499.
'We're forecasting a nearly 200% increase in sales on that product when we move it to that price point because suddenly it moves into the realm of affordability,' Hume said during an interview at the recent Samsung Galaxy A56 launch event in Johannesburg. 'You're getting a great camera, great memory and processing capability that customers have never experienced before — and it's now affordable.'
Although Hume strongly disagreed with her representation, Nomvuyiso Batyi, CEO of the Association of Communications and Technology (ACT), presented a more nuanced view of the industry's response to the tax exemption.
Batyi said Samsung was 'really, really, really excited' about the tax exemption, but she noted that other stakeholders were significantly less enthusiastic.
'Cellular providers and manufacturers based in South Africa don't see the impact yet,' she said. 'No one really knows the impact except the likes of Samsung.'
The affordability conundrum
At the heart of South Africa's digital divide is the prohibitive cost of modern smartphones. Batyi herself illustrated this through personal experience: 'I have a 4G handset that I've had for the past seven years because I refuse to pay R30,000 for a new handset. It just doesn't make sense, but everyone aspires [to] the better handset, isn't it?'
This aspirational gap represents a key challenge for Malatsi's policy. Simply removing a 9% tax on entry-level devices may not address the fundamental pricing structures that keep premium features out of reach for most South Africans.
Batyi pointed out that even for low-end manufacturer Mobicel, which produces 4G and 5G handsets that would benefit from this exemption, the devices would primarily be distributed through bulk government contracts rather than retail channels.
'There is no person who walks into a store and says, 'I want the Mobicel 5 handset,'' she said, highlighting the disconnect between local production and consumer buying patterns.
Is Malatsi's move enough?
The ACT's position on the tax waiver was diplomatically cautious. 'For the tax relaxation for all devices, we approached National Treasury. We are happy that he [Malatsi] took that on, and we're like, okay, it's something,' Batyi acknowledged.
But she immediately followed with a more ambitious proposal: 'If South Africa is serious about the digital economy and serious that [it wants] to transform, the luxury tax can be relaxed for a period of two years [on all 4G and 5G components] and just test the market…'
This suggestion, that a more comprehensive, if temporary, tax holiday might yield more significant results, represents a widespread industry concern that Malatsi's initiative, although welcome, may be insufficient to create transformative change.
Where do the numbers make sense?
Understanding why the tax cut affects different price points differently requires unpacking smartphone economics in South Africa.
Hume explained that the 9% ad valorem duty — essentially a luxury tax — applied to the import price of devices, not the retail price consumers see. For ultra-budget smartphones retailing at R1,000 to R1,200, a 9% reduction translates to barely R90 to R100 off — hardly enough to sway purchasing decisions.
The real sweet spot, according to Samsung, appears to be in the R3,000 to R4,500 range, where the tax waiver creates enough of a price reduction to bring formerly premium features within reach of aspirational buyers.
Hume also pointed to device financing as the 'critical multiplier that could amplify the impact of the tax cut'. When smartphones fall below certain psychological price barriers, they become eligible for more attractive instalment plans, effectively expanding the market of potential buyers.
'As you bring products into the realm of device financing opportunities, that's where the real growth will come from,' said Hume. 'Not simply because of the retail price reduction, but because more consumers qualify for financing at those lower price points.'
The grey area problem
Another dimension often overlooked in discussions about smartphone affordability is the significant grey market for imported devices. Parallel imports — phones brought into the country through unofficial channels — undermine legitimate businesses and government revenue.
Industry representatives argue that making legal imports more affordable through tax cuts like Malatsi's could help combat this problem by narrowing the price gap between official and unofficial channels.
Closing the digital gap
Despite these limitations, Malatsi's initiative represents a concrete step towards addressing what he called 'one of the biggest barriers to digital access'. As the policy takes effect in the coming months, its true impact on SA's digital landscape will become clearer.
Whether this represents a transformative moment in digital inclusion or merely a symbolic gesture will ultimately depend on how consumers respond — and whether price reductions actually translate to increased adoption of 4G technology among previously disconnected South Africans.
The luxury tax waiver may be just the opening move in what needs to be a much longer game of digital empowerment. DM
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.