Smartphones over R2,500 or $150 are now considered luxury in South Africa as the country is set to remove the 9% luxury goods tax, known as the ad valorem tax, on smartphones below $150 starting from April 1, 2025.
This move aims to make basic smartphones more affordable, particularly for low-income consumers, and to facilitate the country’s transition from outdated 2G and 3G networks to modern 4G and 5G technology.
For years, South Africa has classified smartphones as luxury items, subjecting them to the ad valorem tax, which is levied on high-value goods such as motor vehicles, electronics, and cosmetics. However, with digital access becoming a necessity rather than a luxury, the government has decided to eliminate this additional tax burden on entry-level smartphones.
Communications Minister Solly Malatsi has been a vocal advocate for the tax removal. According to him, affordable smart devices are crucial for bridging the digital divide and enabling more South Africans to access essential online services, from education and job applications to financial transactions and e-government services.
Impact on smartphone prices
With the ad valorem tax being scrapped, the effective tax rate on basic smartphones will now stand at 15.5%, which includes a 15% Value Added Tax (VAT), 0.5% increase in VAT, which was announced in the recent national budget. This adjustment is expected to lower the cost of entry-level smartphones, allowing more people to transition from outdated feature phones and gain access to modern mobile networks.
South Africa has been working towards phasing out 2G and 3G networks, which are still widely used, especially in rural and underserved areas. The lack of affordable smartphones has been a major barrier to this transition, as many South Africans rely on basic mobile devices that do not support newer network technologies.
Industry stakeholders have welcomed the government’s decision, citing it as a progressive step toward digital inclusivity. Lower smartphone prices will enable more people to connect to the internet, enhancing opportunities for education, business, and social development.
While this change is a significant milestone, experts suggest that further efforts are needed to improve internet affordability and network coverage, ensuring that all South Africans, regardless of income level, can benefit from a digital economy.
The removal of the ad valorem tax is part of a broader digital transformation strategy to ensure that every South African has access to affordable, high-quality mobile connectivity.
Let the best of tech news come to you
Join 30,000 subscribers who receive Techpoint Digest, a fun week-daily 5-minute roundup of happenings in African and global tech, directly in your inbox, hours before everyone else.
African ICT leaders at the 2024 LEAP summit in Shanghai, China, have also called on governments across the continent to lower the cost of digital gadgets to reduce the digital divide and boost efficiency in various sectors. Taxes on these digital devices are one of the major reasons connectivity across Africa has been slow. Some have even called for smartphone subsidies to increase Internet penetration in Africa.
