Airtime and call data tax collections fell by 19.8 percent or Sh7.4 billion last year on reduced use following the increment of excise duty from 15 percent to 20 percent.
Kenya National Bureau of Statistics data shows the taxman collected Sh29.8 billion last year, a drop from Sh37.2 billion in 2020.
The government imposed a higher tax last year, through the Finance Act, 2020, in a bid to collect at least Sh8 billion in extra revenues from Safaricom, Airtel and Telkom Kenya.
The charge was passed on to consumers, with Airtel increasing the cost of making calls to Sh2.78 per minute and Safaricom to Sh4.87 per minute for peak time, up from Sh4.30 previously.
The new tax had a dampening effect on the use of voice and data that saw companies record a slowdown of revenues, ultimately hitting tax collections.
“Excise revenue increased across all the sub-categories except for airtime which decreased by 19.8 percent from Sh37.2 billion to Sh29.8 billion,” KNBS said in the latest Economic Survey.
Airtime and data have become the biggest source of excise taxes ahead of beer, spirits, cigarettes, bottled water, and financial transactions.
The KRA collected Sh29.8 billion on airtime, Sh28.9 billion on financial transactions and Sh28.5 billion from beer and other sin taxes.
The mobile telephone service consumers also carry the burden of paying value-added tax (VAT), which is levied at 16 percent.
Excise duty on airtime jumped to Sh26.2 billion in 2018, up from Sh16.1 billion the previous year when the government hiked the tax from 10 percent to 15 percent.
This saw an increase in charges for calls, text messages and data as Safaricom raised the cost of calls by 30 cents, and SMS by 10 cents while Zuku increased the costs of subscribers who use the 10Mbps package to Sh3,999 from Sh3,500.
The persistent increment has, however, backfired, with consumers having cut back on making calls and Internet browsing.
Telecoms companies said the extra charge will be borne by the consumer which may negatively impact users’ consumption and stifle innovation at a time when self-employed youth have turned to the Internet to run digital-enabled businesses.
Data has been a key competition point between telcos and Internet providers, with each seeking an edge over the other on a price basis.
Communications Authority of Kenya (CA) data shows Kenya had 65.08 million mobile subscribers in the quarter ended December 2021. Of those users, around 46.3 million had mobile data subscriptions.
Safaricom saw its voice income drop 4.8 percent to Sh82.5 billion in the year to March to make up 27.6 percent of the company’s topline, down from 34.5 percent three years ago.
The company said although its data income grew impressively by 8.1 percent to Sh48.4 billion, the growth was dampened in the second half of its financial year to March due to the new taxes.
“Data performance in the first half of 2022 was weighed down by absorbed excise duty adjustments from August 2021 which slowed down industry momentum and price rationalisation,” Safaricom Ceo Peter Ndegwa said in the investor briefing.
The prominence of mobile phone use has seen taxes increased with a recent study by the GSM Association (GSMA) says Kenya’s mobile industry and consumers, despite being billed as a front runner in Africa, is one the region’s most heavily taxed, inhibiting its potential to grow further and support other economic sectors.
It says that while mobile market revenue accounts for three percent of Kenya’s GDP, the sector’s tax and fee payments account for around 6.5 percent of government’s total tax revenue.
This has bred fears that the tax increases will ultimately lead to a decline in consumption and may stifle innovation and employment.
Excise duty on airtime and data has also spread across the region, resulting in an increase in roaming fees, pushing up the cost of doing business.
Uganda’s Ministry of Finance increased the excise duty on airtime as well as Internet data to 12 percent. Additionally, telecom companies in Uganda pay a VAT of 18 percent for airtime, bringing the total tax to 30 percent.
Excise on airtime in Tanzania is at 17 percent, in addition to which mobile services such as calls, SMS and data are subjected to 18 percent VAT. The Rwandese government charges 10 percent excise on airtime and data and has been considering an upward review.