Mobile Wars Erode Kenya’s Tax Revenue

Mergers, Acquisitions and Financial Results

The government has lost nearly Sh1.5bn in tax collected on airtime due to the mobile phone tariff wars. The shortfall to the Kenya Revenue Authority is attributed to mobile users spending much less on airtime since the telecom operators started the price battles in August last year.

KRA Commissioner General, Michael Waweru says the revenue from the telecom sector is likely to reduce further as a result of the Mobile Number Portability that is starting today."If people have the option of moving to the cheapest network, the Value Added Tax they pay on airtime will be much less, "he said.

It is not only the taxman who has been hit by the price wars but also the mobile phone companies whose revenues have been falling. By end of February, he said, KRA was behind its quarterly target by about Sh10 billion.

Government collections from taxes have been falling and by end of last month stood at Sh394.5 billion against a target of Sh426.4 billion for the financial year. The drop was due to the on goings in mobile telephony sector and other changed regulations.

The implementation of the Alcohol Control Law, popularly known as the Mututho laws, will also have a negative effect on the revenues as it reduces the earnings of beer companies."The effect of the Mututho Bill has not yet been fully assessed," said Waweru.

He said added that the amendment in the Finance Act that removed excise duty based on description of cigarettes also lowered taxes collected on the product.

But he is optimistic that the authority will reach the Sh605.9 billion annual targets as companies are expected to make better returns this year.

Waweru was speaking to the press after an event to launch KRA's ISO9001:2008 recertification. It was first awarded the quality management systems certification in 2007 by SGS Kenya Ltd. Among the changes it has initiated is automation of revenue collection which has helped minimise tax evasion.