Uncertainty over effective date stalls collection of levy on airtime and internet
Safaricom, Airtel and Telkom Kenya have all not yet effected the tax, saying they need clarity on its effective date.
Confusion over the effective date of new taxes on mobile airtime and Internet data tariffs has stalled collection of the levy, putting a Sh20.2 billion dent on President Uhuru Kenyatta’s budget.
The commencement date of the new taxes introduced in the President’s Finance Bill memo to Parliament remains unclear weeks after it was signed into law.
Safaricom,#ticker:SCOM Airtel and Telkom Kenya have all not yet effected the tax, saying they need clarity on its effective date.
The Finance Act signed by Mr Kenyatta on September 21 lumped the airtime and Internet bundle taxes among those that were supposed to commence on July 1.
This, if implemented as per the letter of the law, would require the telecommunications firms to backdate the tax by about four months.
“The implementation date is not clear. We will know what steps to take when it (implementation date) is clear,” said Aldo Mareuse, the Telkom Kenya chief executive officer, in response to the Business Daily’s queries.
Safaricom said it was seeking direction from the government on how to implement the new tax.
“Airtel is assessing various options to minimise customer impact and shall communicate on its plan in due course,” the firm said.
No response
Treasury secretary Henry Rotich and principal secretary Kamau Thugge did not respond to our queries on the matter.
Excise duty on mobile calls and internet data rose to 15 percent from the previous 10 per cent following amendments to the Finance Bill introduced by Mr Kenyatta in the memorandum sent to Parliament.
Mr Rotich had told the National Assembly’s Finance and National Planning committee that the airtime and internet bundle taxes were specifically intended to raise Sh20.2 billion of this year’s Sh2.97 trillion.
The Finance Act says the new taxes are effective July 1, 2018 but the High Court ruled that the law could not be implemented before it went through the legislative process as laid out in the Constitution, including assent by the President.
A case currently pending before court is also challenging the legality of the airtime and internet data taxes, given that they were introduced in a presidential memo, and should have been subjected to a two-thirds majority vote in Parliament.
The Finance Act, which is dated September 21, was gazetted on September 28. This has created three reference points, causing major confusion that is yet to be addressed by the bureaucrats.
“The uncertainty on the effective date has made it very difficult for businesses such as financial institutions, telecoms operators, and internet service providers to comply with the provisions of the Finance Act,” said Lilian Kubebea, a tax partner at financial consulting firm Deloitte East Africa.
“Official communication from the Treasury and the KRA (Kenya Revenue Authority) is necessary to clarify on the effective implementation date.”
Legal interpretation
She added that the matter will likely be resolved through a legal interpretation by the court.
Where it is determined that the revised rates were applicable from July 1, then the KRA can demand for the taxes, Ms Kubebea noted.
Taxes are, however, not ordinarily charged retrospectively.
“An effective date of July 1, 2018 is likely to be challenged in court,” Ms Kubebea said.
All the three leading telecoms operators have remained mum on whether they will absorb the five percent increase in excise duty on telephone and Internet data services.
Most banks have already implemented the higher excise duty on the fees they earn on transactions and other services, in line with amendments introduced in the Finance Act.
Banks earned an aggregate of Sh70.6 billion in fees and commissions last year, indicating that the Treasury will raise at least Sh7 billion from the tax.
Once fully implemented, the new taxes will see consumers pay more for voice calls, Internet and services offered by financial institutions such as ATM cash withdrawals.
For bank customers, the higher excise duty is expected to increase the charges from a few shillings to hundreds of shillings depending on the nature and value of the transaction.
The long-term drop in calling rates and data prices is expected to be halted by the move to raise excise taxes on the services.
Tax increases
Despite the tax increases, public uproar forced the government to trim its original Sh3.02 trillion budget in the current fiscal year by Sh37.6 billion, with recurrent spending dropping by Sh9 billion and capital expenditure falling by Sh28.5 billion.
For consumers, the changes bring additional pain after the President declined to make even deeper budget cuts to ease the burden on ordinary folk as demanded by a section of parliamentarians.
In his memo, Mr Kenyatta laid emphasis on generating more revenues from consumption taxes, adding that the measures were a continuation of the tax reforms that the country has been undertaking in recent years.
