Mobile Phone Tax Revenues Hit Sh4.8bn in Kenya

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The mobile phone industry's importance in the domestic economy grew significantly last year pushing the service providers to the league of top tax payers, official data indicates.

Monthly Economic Review data for December 2007 indicates that the mobile phone sector tax revenues grew by 30 per cent in 2007 compared to the year before.

Mobile phone use accumulated excisable airtime tax worth Sh4.8 billion in the first 10 months of 2007 up from Sh3.7 billion collected during a similar period in 2006.

Telecom sector analysts reckoned that continued rise of the mobile industry as a revenue source for the government should yield a reduction in taxes on airtime.

Mobile phone airtime attracts hefty tax related charges including a 10 per cent excise tax on airtime and a 16 per cent VAT.

"We would welcome a drop in excise taxes as this would allow us to lower charges and reduce the total cost of owning and using a mobile phone," said Claire Ruto, the head of regulatory affairs at Celtel. "More people would be able to communicate, yielding more revenues for all stake holders," she said.

The GSM Association has cited Kenya as one of the last markets in the world where such high charges are levied on airtime. High charges are seen to drive up the total cost of owning a mobile phone and ultimately limiting its contribution to the national economy.

It is estimated that a reduction in taxes would significantly increase subscriber numbers and the sector's contribution to the economy. A World Bank study found that an increase of 10 mobile phones per 100 people translates to Gross Domestic Product (GDP) growth of up to 0.6 per cent per year.

"Any optimisation of the tax structure to make services more available to the consumer or more funds available for reinvestment into the business are welcome," said Robert Mugo, CEO of Flashcom, a local loop operator.

Transport, Storage and Communications sectors contributed to 10.89 per cent of Kenya's GDP in 2006. Nearly 90 per cent of firms consider the mobile phone an important part of their businesses according to the World Bank.

Rates for excise tax were raised from five per cent to 10 per cent in the 2003 Budget, and has the target of concerted lobbying efforts by telephony players who want the figure reduced to 2003 levels.

Meoli Kashorda of the Faculty of Information Technology at Strathmore University advocates that excise tax on airtime should be reduced to five per cent to increase mobile telephony user base and added that the funds collected from the tax should be used to build rural ICT infrastructure.

Speaking during an industry forum on the effect of the mobile sector on economic growth last year, Prof Kashorda said he was surprised the Government was taking business process out-sourcing so seriously yet studies showed that effective usage of ICT locally could hasten economic growth faster.

Additional data from the GSM Association says a cut in excise duty from 10 per cent to 5 per cent on mobile services today would lead to an increase in total tax receipts of up to five per cent between 2008 to 2017.

A corresponding increase in Gross Domestic Product would be realized, with up to Sh34 million, the equivalent of 1.3 per cent, gained in the next ten years.

Business Daily