MTN Want Taxes on Airtime Abolished in Uganda

Mergers, Acquisitions and Financial Results

As Uganda approaches the 2008/09 budget reading, the telecommunications industry wants the Finance Minister Dr Ezra Suruma to broaden the tax revenue base and make the tax burden be shared equitably by the major sectors of the economy.

Such a move, MTN's Chief Commercial Officer, Mr Eric Van Veen said in an interview on Julne 2nd, would permit the government to possibly abolish excise duty on airtime, a tax that has impeded the growth of the telecoms industry, leaving Uganda to trail its EAC neighbours in phone penetration.

Uganda's tele-density, while having improved tremendously in the last ten years, remains only an unremarkable 16 per cent against Kenya's 30 per centand Tanzania's per cent. "Uganda is the only country in the world with excise duty on airtime, even Rwanda which had introduced it realised its harmful macroeconomic impact and abolished it," Van Veen said.

Telecom companies in Uganda pay a VAT of 18% and excise duty (airtime tax) of 12% bringing the total tax burden to 30%. This has meant that airtime in Uganda remains comparatively far more expensive, locking out a large chunk of the population from cell phone use, and consequently limiting their economic potential. Countless studies by the World Bank and telecoms industry bodies have shown that a rise in the spread of mobile communications often produces a huge positive impact on GDP growth.

"The world over, excise tax is a luxury tax mainly put on products like cigarettes, cars, perfumes etcetera, never on basic services like communications," said Mr Van Veen. "So until the government realises that and changes its policy the Ugandan economy will not fully reap the benefits of telecommunications."

Because a large section of the Ugandan economy is still informal, the tax burden is disproportionately borne by telecoms and a few other sectors: breweries, soft drinks, banks, fuel companies. That iniquity though has inevitably made products and services from these industries expensive thus putting breaks on their growth and ultimately limited their contribution to the economy. Mr Van Veen, suggested, too, that the allocation of Uganda's fiscal resources must be rationalised to give areas like infrastructure that underpin economic growth top priority. Uganda is among countries with the worst transportation infrastructure in Africa: no modern rail system, craterous and treacherous roads and undeveloped waterways.

Lack of a rail system for instance, Van Veen said, has meant that Uganda will continue to suffer crippling fuel shortages and yet MTN runs nearly all of its hundreds of base stations across the nation on diesel generators.

"You can't be landlocked in the first place, then lack railways and then have the sort of roads like the one between Bugiri and Jinja, the government must stop giving lip service to infrastructure," he said.

Even more worrying, Uganda's electricity supply is increasingly thermal generated while fuel supplies are growing frustratingly more fickle. That has meant a rise in power outages, making telecom companies rely on generators which in turn balloons their overhead costs.

The Monitor