One of the biggest drivers of the rapid expansion of the information sector under President Kibaki's regime was the 2008 decision to scrap all taxes charged on imported computer parts and accessories. This, with increased mobile connectivity, drove Kenya to the Silicon Valley of Africa, as distributors of appliances and gadgets fought to get a piece of the action.
But more than a decade later, players in the sector are staring at their first slow down after the government increased levies and taxes on imported phones by up to 41 percent as it moved in to harvest the dividends of its previous stance.
Already phone prices are expected to increase by at least 35 percent as dealers pass on the new 25 percent import duty and the 10 percent excise taxes, raising fears among licensed operators that the higher prices will revive a black market.
The price of an S22 for instance, one of Samsung’s high-end phones has gone up from Sh150,000 to Sh185,000 while the price of an iPhone Promax has increased to Sh235,000 from Sh225,000.
Samsung Director Mobile Experience Charles Kimari said the taxman has increased the number of levies on phone imports by up to 41 percent including import duty, value-added taxes and a raft of port clearance charges.
Mr Kimari said the price hike could encourage parallel imports of phones meant for other markets like Dubai that can be flown in a briefcase or smuggled through the neighbouring countries.
He said the higher taxes would also hurt Kenya’s sharp rise in digital inclusion and adoption of 4G technology through smartphone handsets.
“The price increase will definitely affect demand, but will also encourage parallel imports for gadgets that are not for this market but will be cheaper without the higher taxes,” Mr Kimari said.
The new duty will be calculated based on the cost of the mobile phones ordered into the country and other taxes and levies. Tax experts say the new taxes on the purchase and use of mobile phones are aimed at raising new revenue rather than protecting a non-existent local industry.
Kenya is a huge market for imported mobile phone gadgets with the Samsung Mobile Experience Director putting the average units sold a month at 360,000, boosting tax collections for the KRA.
Industry players say the higher taxes will push most phone buyers to the black market leaving authorised dealers with mostly corporate clients. Parallel imports are smuggled into the country without paying taxes and traded on a cash basis but lack warranties or after-sale services offered by licensed sellers.
Samsung says it will now lean on partnerships with credit providers such as Watu, Dlight, Safaricom and M-Kopa to help customers access asset finance in a bid to cushion customers from the price hikes.
“We have to educate the market that it is not the production cost that has gone up but due to taxation. We also have to find ways of making the gadgets affordable through purchase programmes with flexible payment schedules over 12 months to ensure they remain affordable,” Mr Kimari said.