Githae seeks new tax on telcos’ free services

Finance Minister Njeru Githae is seeking to tax ‘free’ services offered in Kenya’s telecoms market on the strength that the government is losing millions of shillings in revenues.

Also read: Treasury’s capital gains tax to raise house prices

The minister is targeting operators like Essar Kenya and Airtel that have launched free services in a bid to grow their share of voice business and mobile money transfer service.

Essar, owner of the yu brand, and Airtel charge for sending money on their money transfer services, but their subscribers pay for withdrawals. Yu subscribers also call within the network for free after paying a daily fee Sh5.

Now, the finance minister wants to charge the operators for the free services as part of plans to raise tax receipts to meet additional expenses like the recent salary increases for teachers, lecturers and doctors. “Companies that are giving free airtime minutes (calls) can give it for free but they have to pay tax on it,” said Mr Githae.

“We are going to put in a minimum for example 10 per cent of the transfer charge or say Sh50 per transaction (mobile money transfer). By saying that you are not going to charge anything, what that means is that the taxman is going to lose.”

Treasury says the Kenya Revenue Authority will be expected to collect Sh1 trillion in the next financial year, up 15 per cent compared to this year’s Sh870 billion target.

The government plans to introduce a 10 per cent excise tax on fees earned from mobile cash transfer while airtime attracts the 16 per cent VAT charge and excise tax of 10 per cent.

Madhur Taneja , the country manager of yuMobile reckons that Treasury’s attempts to levy fresh taxes will strengthen the dominance of Safaricom in the market place.

“By offering transfer services at low cost or for free, we are trying to make our services more attractive to the consumer giving them more options and enhance competition in our operating environment, “ said Mr Taneja in an e-mail response to the Business Daily.

“As investors, stability in policy-making is crucial in planning our future investment programmes and a move like this (charging the ‘free’ services) will impact negatively on our plans that are already in place.”

Safaricom controls 80.7 per cent market share in terms of voice traffic while Airtel and Essar have 10.9 per cent and 7.7 per cent respectively. It is also dominant in the money transfer business through its M-Pesa brand.

It has nearly 40,000 M-Pesa agents, leaving the rest of the service providers with a paltry 9,000 agents across Kenya.

Airtel says it has 6, 000 agents.

By eliminating cash transfer fees, Airtel wants to get a piece of this business while riding on Safaricom’s network through cross-network transfers. But since Airtel charges withdrawals which range between Sh15 and Sh300, tax experts reckon that the service is not free.

Deloitte says government tax is charged on the overall revenue that Airtel draws from the service and added that zero fee had been approved by the banking and communication regulators.

“Airtel is committed to complying with the laws of the countries in which it operates and it is no different on this issue. The proposed tax will impact all players in the mobile money space and not just Airtel,” said Airtel in a statement yesterday.

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