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How tax on communication services will pinch hard.

figure By JOHN WALUBENGO Following the presidential assent to the Finance Bill 2018 last week, Kenyans will be paying higher charges for communication services.Specifically, the government shall be collecting 20 percent excise duty on electronic money transfers and 15 percent excise duty on telephone and internet services.

Kenya is the global leader in mobile money transfers, and definitely the government is set to reap heavily from each of the half a billion mobile money transactions that Kenyans make every quarter.The transaction charges are likely to go up by 20 percent, as the operators pass on the extra cost to the consumers.

Surprisingly, the number of mobile money transactions is unlikely to go down significantly despite the tax increment, since it will still be cheaper to send money electronically as opposed to using the physical alternatives.Subscribers of lower socio-economic status may however split their transaction amounts into smaller values in order to take advantage of the free transfer band and avoid the higher taxes.

Some mobile operators are therefore likely review their tariff structures in the event that they notice some negative impact on their bottom lines arising from such subscriber tactics.With respect to telephony, 15 percent duty will further depress revenue streams from voice services, as subscribers change their calling habits to strictly essential or emergency situations.

Whereas this change might apply within social settings, the business sector might not easily cut down on telephone costs. In other words, the business sector should expect to see an increase in the cost of doing business, as the telephone costs go up to reflects the 15 percent excise duty.

INTERNET SERVICESInternet services face a more unpredictable environment, since this is the first time service providers will be expected to slap excise duty on internet users.It remains to be seen whether the 15 percent excise duty will apply to the overall current prices, or if it will apply only to some smaller specific components.

Whichever way it goes, this will increase the monthly charges for internet services and fly against the government's own policy of providing affordable internet, as defined in the National Broadband Strategy.BROADBAND STRATEGYThe broadband strategy anticipated that by 2017 Kenyans would be paying for high speed broadband link for a price that is less than ten percent of their average national income.

Given that our average incomes are about Sh10,000 a month, Kenyans should be paying a monthly bill of about Sh1,000 for a fixed 10mbps internet connection.Current price statistics from ITU indicate that this is not the case and we are actually spending about 40 percent of our average incomes on fixed broadband internet.

Mobile based internet looks more affordable, given their competitive daily data bundle payment plans, but when translated over monthly plans, you realise that data bundles are not that cheap either.Whether mobile, or fixed broadband, 15 percent excise duty can only push Kenya further from its local and international broadband affordability targets, and should be reviewed.

Failure to reconsider this tax on communication service will make Kenya a less attractive digital investment destination, which would be quite an anti-climax for an administration that came into power riding on the promise of a ''digital government.'' class="MsoNormalMr Walubengo is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT.

Email: [email#160protected], Twitter: @Jwalu Related Stories
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Publication:Daily Nation, Kenya (Nairobi, Kenya)
Geographic Code:6KENY
Date:Sep 25, 2018
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