Rwanda airtime tax upsets bid for uniform call rates

Safaricom’s pre-paid mobile subscribers will have to pay six per cent more for airtime top ups while in Rwanda following an increase in excise tax.

Rwanda increased its excise tax to eight per cent from five in last week’s budget, a move that what could complicate efforts to have a common telecommunication tax regime in the region.

Operators, including Zain, Safaricom, Telkom Kenya, Tigo, and MTN, rely on partnership with other operators in the region to provide services.

New tariff

Safaricom, for example, has partnered with both MTN Uganda and Rwanda while in Tanzania it has an agreement with Vodacom.

Safaricom currently charges Sh18.50 per minute In Rwanda, while Zain Kenya just introduced a new tariff of Sh20 within the East Africa region, three days after the budget announcement.

Safaricom chief executive Michael Joseph said Rwanda, like Kenya, does not apply tax on roaming services and that he did not expect the roaming charges to change for its post-paid subscribers.

“For the pre-paid roaming Top Up, customers will get less talk time for the same amount as the increased tax will be passed on to the customer.”

Zain Kenya managing director Rene Meza said his company does not offer roaming services for its pre-paid customers while in Rwanda and thus does not see any impact of the tax increase on its post-paid subscribers.

“There will be no impact on our roamers since this airtime tax is targeting pre-paid users who have to reload using vouchers.” said Mr Meza

“Currently, roaming in Rwanda is only open to our post-paid subscribers and they do not need recharge vouchers to buy airtime”

Over the past three years, Rwanda has maintained the lowest excise charge of between three per cent which later increased to five per cent and now to eight per cent.

This has been used as a reference point by those advocating for lowering of the excise duty

Excise tax ranges between five percent and 12 per cent within the East African Community countries.

This is on top of VAT, which ranges from 16 per cent to 18 per cent – ranking the East African region as one with the highest calling rates in the world.

Currently the excise duty in Kenya stands at 10 per cent while Uganda levies the same at 12 per cent and Tanzania at seven per cent respectively.

Mr Meza said taxation rates vary across countries and thus harmonisation means some have to increase while others will reduce the rates which will affect operators and economies in general, thus the need for careful assessment prior to harmonisation

The lowering of the excise duty has been a joint venture in the three East African countries of Kenya, Uganda and Tanzania, which if adopted, will spur economic development in the region.

The quest to remove or reduce excise tax has been informed by a study that was commissioned by the GSMA Association and carried out by Delloite.

Findings indicated that removal of excise would grow access and increase government revenue from airtime recharge vouchers and not the reverse.

Despite those findings and further lobbying by operators, governments have not moved to reduce or remove the tax.

A study done by Deloitte in 2007 shows that East African mobile operators lose a third of their revenues to governments by way of taxes and other government tariffs.

Tax receipts

It warns that if the governments in Uganda, Tanzania and Kenya were to cut mobile taxes today, their total tax receipts would actually rise in the medium to long term.

The study reasons shows that a cut in mobile services taxes would lead to a reduction in tariffs, which would subsequently boost usage of mobile services.

Greater usage of mobile phones improves communication between businesses and their customers, fuelling economic development and lifting tax receipts from across the wider economy.

Conversely, if the government of Rwanda does go ahead with its plan to introduce mobile specific taxes, tax receipts will fall in the medium- to long-term.

The study noted that if Kenya cut excise duty from 10 per cent to five per cent on mobile services today would lead to an increase in total tax receipts of up to five per cent between 2007 to 2017, and an increase in Gross Domestic Product (GDP) of up to $486,416,000 the equivalent of 1.3 per cent , between 2007 and 2017.