South Africa's tax cut shifts smartphone market to entry-level devices
A recent removal of excise duties on budget phones in South Africa has reversed a sales slump, pushing feature phones out of the market and altering how manufacturers price their hardware.
South Africa has seen a significant shift in its mobile device market following the removal of a 9% excise duty on smartphones priced under 2,500 rand. This tax change, effective from April 2025, reversed a long-standing decline in the affordable segment. According to GN technics/mobile (en-US), this was previously the only part of the smartphone market experiencing sustained sales drops.
The financial impact has been immediate for consumers and producers alike. By lowering the entry price, the policy has made smartphones more accessible to lower-income households. This shift has effectively squeezed out basic feature phones, which are no longer a viable alternative for many users seeking modern connectivity and digital services.
Sales figures show a sharp reversal
Data from a GSMA study covering the period from March 2025 to February 2026 highlights the magnitude of this change. The average monthly sales dynamics for entry-level smartphones flipped from a 7.9% decline to a 6.2% growth rate. Over eleven months, sales volumes for these affordable smartphones rose by 80%. In contrast, sales of basic feature phones plummeted by 87% during the same period.
The primary driver for this switch is the narrowing price gap between basic handsets and entry-level smartphones. As the cost of a basic smartphone dropped below a key psychological threshold, lower-income households found it more economical to upgrade. This transition allows users to access essential digital tools that are unavailable on older, non-smart devices.
Manufacturers face rising component costs
While demand for budget phones has increased, manufacturers are navigating a challenging environment. Global prices for memory chips and random access memory have risen sharply, with some costs doubling or tripling. This creates a tight margin for companies producing devices that must stay under the 2,500 rand threshold to avoid the excise duty.
Fred Zhou, CEO of Honor South Africa, noted that manufacturers must carefully select device specifications to keep prices within this limit. To respond to demand, Honor increased its number of models priced under this threshold from two to three this year. They also maintained one device below 2,000 rand to ensure broader accessibility despite the higher cost of internal components.
Digital access drives the policy
Government officials view this tax relief as a tool for social inclusion. Solly Malatsi, the Minister of Communications and Digital Technologies, emphasized that affordable smart devices help young people find work and students access online education. He also highlighted the importance of smartphones for citizens using government services and online banking.
The move also supports small business owners who rely on mobile devices to reach customers. However, the exit of feature phones from the market leaves some users with limited options. Notably, basic handsets no longer support popular messaging apps like WhatsApp, as support for their operating systems was discontinued years ago. This further cements the smartphone as the default device for digital participation in South Africa.
