'Low airtime tax can boost govt revenue'
Mar 14, 2007
A REDUCTION in excise duty on airtime to 8% from 12% will boost government revenue by sh117b by 2017 due to increased usage of mobile phones, a study has revealed.
By Sylvia Juuko
A REDUCTION in excise duty on airtime to 8% from 12% will boost government revenue by sh117b by 2017 due to increased usage of mobile phones, a study has revealed.
The GSM Association study, which was conducted by Deloitte, shows that Uganda’s Gross Domestic Product (GDP) will be boosted by 0.6%, representing sh178b.
Gabriel Solomon, the director of government and regulatory affairs at the GSM Association (GSMA), said the reduction would lead to a reduction in tariffs, which would in turn spur usage of mobile phone.
“As East Africa’s governments prepare budgets for the coming year, we urge them to also review their mobile phone taxation policies. Consumers, the private enterprise and governments will all benefit from a cut in the taxes,†Solomon explained.
The GSMA is a global trade association representing 700 GSM mobile phone operators in 218 countries.
Uganda has the highest mobile phone tax rate in East Africa. Kenya’s rate is at 10%, Tanzania’s 7% while Rwanda is proposing to introduce the duty.
This means Ugandans pay between 25%-30% taxes more compared to Africa’s 17% average. There are over three million mobile phone subscribers in the country and a phone penetration rate of about 9%.
However, GSMA acknowledges that while tax revenues are lost in the short-term, the losses are offset by increased revenues due to growth of the telecommunications companies and the economy.
“Though reduction in the excise tax leads to loss in government revenue, it is mitigated by an increased subscriber base and usage, implying high volumes on which the Government applies Value Added Tax,†the report reads.
Additional corporation tax and regulatory revenues paid by the companies from the increased business will also compensate for the revenue loss from tax cuts, says the study.
According to the GSMA, the telecommunications sector contributed about 4.6% (sh767,368m) to the country’s GDP last year, from 2003’s sh242,818m.
The study estimates that over 100,000 Ugandans are directly employed and more with jobs in related industries.
The study also revealed that mobile phone penetration reduced travel times and costs especially in rural areas where traders had to travel to urban centres to check for demand for goods and prices.
The telecommunications sector has spawned entrepreneurship, leading to the growth of small businesses, the report shows.
The sector has made other service sectors launch products like mobile banking.
On the downside, the study shows that East African telecommunications providers are the worst performers in terms of phone penetration due to taxes levied on their services.
“Mobile-specific taxes are high and only levied on a handful of jurisdictions globally. Uganda is ranked among the highest, with the tax making up nearly 27% of the total cost of mobile ownership. Excise duty alone makes up 9% of the total cost,†notes the report.
It concludes that if Uganda is to continue economic growth, the sector shouldn’t be over-taxed.
“Government policy shouldn’t restrict economic development through policies which may restrain demand for mobile services.â€
A REDUCTION in excise duty on airtime to 8% from 12% will boost government revenue by sh117b by 2017 due to increased usage of mobile phones, a study has revealed.
The GSM Association study, which was conducted by Deloitte, shows that Uganda’s Gross Domestic Product (GDP) will be boosted by 0.6%, representing sh178b.
Gabriel Solomon, the director of government and regulatory affairs at the GSM Association (GSMA), said the reduction would lead to a reduction in tariffs, which would in turn spur usage of mobile phone.
“As East Africa’s governments prepare budgets for the coming year, we urge them to also review their mobile phone taxation policies. Consumers, the private enterprise and governments will all benefit from a cut in the taxes,†Solomon explained.
The GSMA is a global trade association representing 700 GSM mobile phone operators in 218 countries.
Uganda has the highest mobile phone tax rate in East Africa. Kenya’s rate is at 10%, Tanzania’s 7% while Rwanda is proposing to introduce the duty.
This means Ugandans pay between 25%-30% taxes more compared to Africa’s 17% average. There are over three million mobile phone subscribers in the country and a phone penetration rate of about 9%.
However, GSMA acknowledges that while tax revenues are lost in the short-term, the losses are offset by increased revenues due to growth of the telecommunications companies and the economy.
“Though reduction in the excise tax leads to loss in government revenue, it is mitigated by an increased subscriber base and usage, implying high volumes on which the Government applies Value Added Tax,†the report reads.
Additional corporation tax and regulatory revenues paid by the companies from the increased business will also compensate for the revenue loss from tax cuts, says the study.
According to the GSMA, the telecommunications sector contributed about 4.6% (sh767,368m) to the country’s GDP last year, from 2003’s sh242,818m.
The study estimates that over 100,000 Ugandans are directly employed and more with jobs in related industries.
The study also revealed that mobile phone penetration reduced travel times and costs especially in rural areas where traders had to travel to urban centres to check for demand for goods and prices.
The telecommunications sector has spawned entrepreneurship, leading to the growth of small businesses, the report shows.
The sector has made other service sectors launch products like mobile banking.
On the downside, the study shows that East African telecommunications providers are the worst performers in terms of phone penetration due to taxes levied on their services.
“Mobile-specific taxes are high and only levied on a handful of jurisdictions globally. Uganda is ranked among the highest, with the tax making up nearly 27% of the total cost of mobile ownership. Excise duty alone makes up 9% of the total cost,†notes the report.
It concludes that if Uganda is to continue economic growth, the sector shouldn’t be over-taxed.
“Government policy shouldn’t restrict economic development through policies which may restrain demand for mobile services.â€