IT IS budget season in east Africa and the spending is easy. A shopping list of roads, pipelines, ports and public-sector pay rises prompted Uganda and Tanzania to hike their planned expenditure for 2013/14 by 21%; Kenya’s spending is projected to rise by 12%. With Western aid declining and oil-and-gas income yet to flow, the problem is how to pay for it all. Answer: squeeze more revenue from the telecoms industry.
Kenya was first out of the blocks at the turn of the year when it levied a tax on mobile-money transfer systems. That was largely aimed at soaking up some of the profits generated by M-PESA, a simple phone-based service operated by Safaricom that acts as a bank account and debit card for millions of Kenyans. Uganda followed suit this month, extending excise duty to all mobile-related activities; and Tanzania is expected to copy them.
The Shibor shock
Building the next boom
State of pay
Charging the mobile
Desperately seeking scepticism
Engineers of a different kind
East Africa is the cradle of the continent’s mobile-money revolution. The three countries fill the top spots in a Gallup survey of domestic remittances via mobile phones in Africa. Mobile operators are credited with stimulating growth by helping money in the informal sector flow to the rest of the economy. Some 17m of Kenya’s 19m adults are signed up to M-PESA. Cash equivalent to nearly one-third of Kenya’s GDP washes through the service.
Low rates of formal employment in the region mean that policymakers favour indirect taxes such as import duties and VAT over increases in income tax. Targeting telecoms is simple and efficient: the authorities just look at Safaricom’s results, and levy the tax on the transaction fees that have been generated from M-PESA transfers. As Bosire Nyamori, a lecturer in tax law at Nairobi’s Jomo Kenyatta University, says: “It’s easier than sending collectors to look for people with no fixed addresses.”
Gabriel Solomon of the GSMA, a global association for mobile operators, says his members are being unfairly targeted as a proxy for taxing the informal economy. East African mobile consumers already pay some of the highest sector-specific taxes in the world, he argues. It has reached the stage, he says, where “if you’ve got a hole in the budget then target telcos.”
Phone bills in Kenya are bulked out with VAT at 16% and a 10% excise duty. Corporate profits are then taxed at 30%. The new mobile-money levy sees an additional 10% tax on the transaction fees charged by operators to transfer or withdraw cash from systems like M-PESA. In Uganda a 12% levy on airtime has just been raised to 14% and expanded to cover all operators’ services, including mobile banking. Bob Collymore, Safaricom’s chief executive, says he understands the need to raise public funding to pay for infrastructure but worries that over-taxation risks “stifling what is still a nascent sector”.
Indeed, the value of mobile payments, which posted strong monthly rises throughout 2012, fell by almost 1% in January, the month the Kenyan transaction tax was first levied. The contraction reached almost 5% by March. A move back to stuffing bills in mattresses helps no one.
Article source: http://www.economist.com/news/finance-and-economics/21579870-east-african-governments-are-targeting-telecoms-firms-charging-mobile?fsrc=rss|fec