Tanzania: TRA 'Cries' As Mobile Phone Pricing War Ruins Tax Collection Targets

Mergers, Acquisitions and Financial Results

The intensified price wars among mobile phone operators has adversely revenue collection in February, as collection of Value Added Tax (VAT) was short of target. The price wars resulted into lower than expected VAT collection in February, with only 93.6 per cent or 409.3bn/- of the target collected, according to Bank of Tanzania (BoT) Monthly Economic Review of March.

The central bank attributes the collection falls to account of price wars between mobile phone companies and the power rationing. However, a lecturer at the University of Dar es Salaam, Prof Jamidu Katima, says that the price war tells more than what the eye can see.

"If that is true then, the phone companies where overcharging us, "Prof Katima, the chairman of Energy and Water Utilities Regulatory Authority - Consumer Consultative Council (EWURA--CCC) told the 'Business Standard' in an interview. "Or else we should look critically onto the revenue collection data to authenticate the tax drop because it defies the principle law of demand and supply," he added.

For his part, Principal Communication Officer with the Tanzania Communications Regulatory Authority (TCRA), Innocent Mungy also said that he could not believe that price wars were a result of a tax drop. "What I understand is that the more the people talk the more the VAT. Call rates are charged per consumption. I don't think it's true that the competition has lowered taxes...since when more calls are made, it means more revenue," he said on Monday.

TCRA data shows that price war has increased subscribers' minutes spent from 188 minutes in last year's third quarter compared to 218 minutes of last quarter that ended in December 2010.

On other hand, the monthly money spent per user dropped from 8,908/- of third quarter to 5,849/- of last quarter. This signifies that the price war has increased time spent on the phone as tele-tariffs are low.
 
However, this shifted the consumers' budget line on decreasing side - hence low revenue. Yet, subscribers were attracted by low tariffs on short message services (SMS). The number of SMS sent in three months (October- December 2010) almost doubled to 680 from 453 million in the previous three months.

The average money spent per user also increased to 1,663/- in Oct-December from 1,122/- of July-September 2010, painting a picture that subscribers have spent money saved on talking to send SMS.

On cumulative basis, BoT indicates, tax revenue in the first eight months of 2010/11 amounted to 3.37trn/- (about 92 per cent of the budget estimate), while non-tax revenue reached 204.7bn/- which represents 80 per cent of the budget estimates.

Domestic revenue collection was 90.8 of per cent of the estimates or 10.3 per cent whereas in the corresponding period in 2009/10 it was 9.8 per cent of the Gross Domestic Product (GDP).