Impact of Taxation on Investment for Mobile Network Operators in Zimbabwe

Using panel data of Mobile Network Operators in Zimbabwe, this paper investigates the impact of taxation on investment in the telecommunications industry in Zimbabwe. Using Dynamic Panel Data Models to address the heterogeneity of the individual telecommunication operators and by the use of lagged variables as instruments to deal with endogeneity, we find statistically strong evidence of a negative impact of taxation on investment by Mobile Network Operators. An increase in excise duty by 1 percent reduces investment by Mobile Network Operators by 0.13 percent. Relatedly, an increase in Value Added Tax by 1 percent reduces investment by 1.6 percent. Furthermore, based on a model with endogenous independent variables with six lags of the investment variable, an increase in Mobile Network Operators’ revenue by 1 percent increases investment by 2.2 percent. From a policy perspective, the results give a further and deeper understanding of the complex and dynamic relationship between tax regulations and strategic decision-making in the telecommunications industry and inform evidence-based policymaking. The impact of taxation in the telecommunications sector is a multi-pronged issue that needs to be structured around not only the benefits it generates to the government but also the costs it causes to users, licensed operators and the economy in general. The findings help to illuminate the importance of adopting context-specific approaches to tax policy design, administration and reform. By combining empirical evidence and practical implications, this research contributes to a deeper understanding of the dynamics shaping tax systems in the telecommunications sector. Scope still exists for further interrogation by extending the analysis to Internet Access and Service Providers.