Editorials

Increased telecom taxes will kill jobs, innovation

tax

One of the proposals in the Finance Bill 2023 is to abolish the waiver of penalties and interest. FILE PHOTO | SHUTTERSTOCK

New taxes saddling the telecoms sector are likely to weigh heavily on owning and the use of mobile phones, which has driven financial inclusion in Kenya and created thousands of jobs.

Beginning Friday, buyers of mobile phones will face higher charges following the enactment of a 10 percent excise duty on the importation of phones in addition to Sh50 excise duty on an imported ready-to-use SIM card.

The new duty will be calculated based on the cost of the mobile phones ordered into the country and other taxes and levies.

Just last year, the Treasury increased excise duty on airtime and call data from 15 percent to 20 percent through the Finance Act, 2020.

Airtime and data taxes have become the biggest source of sin taxes ahead of beer, spirits, cigarettes, bottled water and financial transactions.

The Kenya Revenue Authority collected Sh29.8 billion from airtime ahead of Sh28.9 billion on financial transactions and Sh28.5 billion from beer sin taxes. Over the years the rise in the use of mobile phones has been central in driving innovation and employment, especially for the self-employed youths who rely on the Internet for their income.

Communications Authority of Kenya (CA) data shows Kenya had 60.1 million mobile phones in March from 59.56 million last December.

Active mobile (SIM) subscriptions, on the other hand, fell by 200,000 in the three months through March 31 to 64.9 million, reflecting the impact of the push to have users update registration details with a cap of two lines per user.

The extra charges from new tax measures which are being passed onto consumers may negatively impact user consumption and stifle innovation at a time when self-employed youth have turned to the Internet for their incomes.

This is already being witnessed with airtime and call data tax collections, which fell by 19.8 per cent or Sh7.4 billion last year on reduced use following the increment of excise duty.

The Kenya National Bureau of Statistics data shows the taxman collected Sh29.8 billion last year, a drop from Sh37.2 billion the previous year.

The Treasury must re-evaluate its tax policy towards the telecoms sector so as not to kill the duck that lays the golden eggs.