Removal of mobile-specific taxation powers mobile boom in Kenya

Mobile handset sales have soared by 200 percent in Kenya
following the government’s 2009 decision to slash the 16 percent Value Added
Tax (VAT) levied on handset sales, according to GSMA.  

“Kenya has shown great foresight in abolishing
mobile handset taxes making mobile services more affordable for the wider
population, with the growth in uptake contributing significantly to the Kenyan
economy,” said Gabriel Solomon, head of regulatory policy, GSMA.

“Mobile operators will contribute 33 percent more in
tax this year than they did prior to the handset tax slash and will contribute
around 8 percent of Kenya’s GDP this year. We call on all African governments
to consider abolishing handset taxes and follow the successful example of
Kenya,” Solomon added.

Since the Kenyan government’s abolition of the VAT on
handset sales, mobile penetration has increased from 50 percent to 70 percent.
In 2011 the mobile communications industry contributed more than KES 400
billion to the Kenyan economy. Additionally, the research indicates that in
2011 the mobile communication industry as a whole employs almost 250,000 people
in Kenya.

Despite the research finding that taxation on the total
cost of ownership for a mobile phone in Kenya fell from 25 percent to 17
percent over the last five years and the abolition of VAT, mobile taxation in
Kenya still remains just above the average across sub-Saharan Africa as a 10
percent excise duty as well as VAT on airtime is still levied.

The research also found that a new type of tax is
emerging in Africa: the ‘Surtax on International Inbound Call Termination’
(SIIT), which centrally fixes the prices that operators can charge when
terminating international inbound calls. The SIIT distorts price competition,
which has a negative impact on business and consumers.

The research found that where the SIIT has been imposed,
the level of inbound international traffic has fallen and prices of outbound
calls have increased due to the reciprocation of higher termination prices by
operators in other African countries.

The SIIT has had the following impact where it has been
applied in Congo Brazzaville, Gabon, Ghana and Senegal:

In Congo Brazzaville, the price of inbound traffic has
risen by 111 percent and operators report that inbound traffic fell by 36
percent between May 2009, when the tax was introduced, and May 2011;

In Gabon, prices rose by 82 percent when the SIIT was
imposed in August 2011;

In Senegal, prices rose by 50 percent and operators
report that the number of international call minutes terminated on its network
decreased by 14 percent in the first five months; and

In Ghana, prices rose by 58 percent and operators report
a 35 percent decrease in international call minutes terminated on its network
in the month after the imposition of SIIT compared to the month prior to its
introduction, and an 18 percent fall in call minutes in the six months after
its introduction compared to the six months prior.

By Team
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