Despite a new study indicating that the elimination of value added tax (VAT) on mobile phone handsets in Kenya helped fuel a 200 percent increase in handset purchases, the Zambian government is declining to scrap the VAT on imported handsets.

The new GSM Association (GSMA) report, released last week, calls on African governments to lower taxes to enable mobile network expansion and generate economic and social growth. Dubbed Africa Observatory 2011, the report suggests that though Africa's mobile connections have reached almost 650 million, faster expansion has been hindered by high taxes on handsets.

Africa is now the world's second-largest mobile market by connections after Asia, but growth is expected to be sustained through cheaper handsets that can be accessed even by people in rural areas. This can only be achieved by removing VAT and other duty on imported handsets, the GSMA report said.

In 2009, Kenya became the first country in East Africa to scrap the VAT on handsets, resulting in increased handset purchases and increased connections, the report noted.

But in the 2012 national budget presentation Nov. 11, Zambia joined Uganda and Tanzania among the countries in Eastern and Southern African that have refused to scrap the VAT on handsets.

"We are disappointed that the government has refused to remove the VAT because that is what is raising the cost of mobile handsets in the country," said Amos Kalunga, telecom analyst from the Computer Society of Zambia.

The Zambian government has come under fire for allegedly using VAT to protect local mobile handset vendors from closing due to stiff competition from Chinese-made handsets.

Two months ago, China's Huawei Technologies said the sale of Internet- and non-Internet-enabled handsets in Uganda was being curtailed by VAT.

The increasing number of imported and highly subsidized mobile phones from China into the Zambia market, however, is having a negative impact on the growth of M-Tech Zambia, according to recent statements by Chairman Mohammed Seedat.

By 2015, the GSMA report said, next-generation LTE networks are expected to reach 500,000 connections in Kenya, 1.1 million in Nigeria and 2.5 million in South Africa.