Raising airtime, data taxes is a bad call

Excise taxes on airtime and data are set to go up from 15 to 20 percent — allowing the taxman to collect at least Sh8 billion in extra revenues from Safaricom, Airtel and Telkom Kenya.

This move will hit the consumers of airtime and data hard in the pocket especially in view of the fact that the consumer of mobile telephone services also bears the burden of paying VAT that is levied at 16 percent.

Simply put, it means that if as a consumer you buy airtime or mobile data of an amount of Sh100 a whole Sh36 will go to the government in the form of taxes.

Clearly, mobile telephone users will be paying some of the highest taxes on the land.

Two policy questions arise: what is the primary purpose of taxation? Merely to collect more money for the government or to enable the achievement of good in society?

What if, in stubbornly insisting on collecting more revenues, the taxman unwittingly finds himself hurting citizens, companies and the broader macro-economy?

But what should be of more concern to us is the indiscriminate manner in which the taxman has been expanding the sin tax list. Does airtime and data deserve to be treated as sin taxes?

Is it fair to tax consumption of airtime and mobile data at the same level as taxing consumption of goods of ostentation such as perfumes, whisky and mineral water?

These are pertinent questions because historically, excise taxes in Kenya were levied on the domestic production of only four products — namely cigarettes, sugar, beer, spirits and matches.

It all made sense to restrict excise duties to these four products because —as we read in theory — excise taxes are increased to discourage consumption of products deemed to be harmful to the health and morality of the consumer.

As we all agree, consumption of cigarettes, excessive drinking of beer, brandy or gin is deemed to be harmful not only to the individual consuming the product but also to society at large.

Excessive drinking is associated with many social maladies, including alcoholism and road accidents. I don’t see the connection between these perennial upwards adjustments on excise duties on airtime and mobile data and discouraging consumption of potentially harmful products.

Enough of theory. Why do I maintain that raising excise taxes on mobile phone and airtime is a wrong-headed policy?

First, it could cause a reversal in the gains the country has made in expanding financial inclusion.

Indeed, progress we have made in financial inclusion in this country has mainly been driven by the entry of the mobile-phone into the financial services ecosystem.

Do we, really, want to reverse the phenomenal gains we have made in terms of expanding financial inclusion?

With the constant upward revision of excise taxes on airtime and data, shouldn’t we be worried that we may be sending the wrong message to the mobile user: that the intention is to discourage use of mobile phone services?

Our own experience has amply demonstrated that consumers of mobile telephone services respond to tax incentives.

In June 2009, the government, recognising the importance of access to mobile telephony, exempted handsets from VAT. The result was a phenomenal increase in handset purchases.

Which brings me to the second reason why I maintain that this latest increase in excise duty on airtime and data is wrongheaded.

Me thinks that the taxman is running out of ideas on how to expand and broaden tax bases and that is why he is resorting to tinkering with excise taxes on mobile phone services because airtime and data are easy prey.

The taxman goes for the easy target because, administratively, excise duty on airtime and mobile data are easy to collect. All that the taxman does is sit back and wait to collect cheques from a few large companies — Safaricom, Airtel and Telkom Kenya.