East Africa Taxing Mobile Operators To Pay For Infrastructure?

East Africa Taxing Mobile Operators To Pay For Infrastructure?

Kenya, Uganda and Tanzania, “the cradle of the continent’s mobile-money revolution,” are adjusting their budget expenditures upwards, and they’re squeezing mobile operators to help pay for the spending, according to a report in The Economist

Kenya was first to tax mobile-money transfer systems, targeting some of the profits generated by M-PESA, a phone-based service operated by Safaricom that acts as a bank account and debit card for millions of Kenyans, the report said. Ditto for Uganda, which this month extended excise duty to all mobile-related activities. Tanzania is expected to copy them.

A Gallup survey shows the three countries rank in the top three for domestic remittances via mobile phones in Africa. An estimated one third of Kenya’s gross domestic product goes through M-PESA, the The Economist report says.

Low rates of formal employment in the region make policymakers favor indirect taxes such as import duties and value-added tax over increases in income tax, according to The Economist.

Targeting telecoms is easy: authorities just levy the tax on the transaction fees generated from M-PESA transfers.

“It’s easier than sending collectors to look for people with no fixed addresses,” said Bosire Nyamori, a lecturer in tax law at Nairobi’s Jomo Kenyatta University, according to the report.

Mobile operators are being unfairly targeted as a proxy for taxing the informal economy, says Gabriel Solomon of the GSMA, a global association for mobile operators. East African mobile consumers already pay some of the highest taxes in the world, he said in the report. It has reached the stage, he says, where “if you’ve got a hole in the budget then target telcos.”

Tacked onto Kenyan phone bills are a 16 percent value-added tax and a 10 percent excise duty. Corporate profits are then taxed at 30 percent. The new mobile-money levy sees an additional 10 percent tax on transaction fees charged by operators to transfer or withdraw cash from systems like M-PESA. In Uganda, a 12 percent levy on airtime was just raised to 14 percent and expanded to cover all operators’ services including mobile banking.

Bob Collymore, Safaricom’s CEO, says in the report he understands raising public funds for infrastructure but worries over-taxation risks stifling “a nascent sector.”

The value of mobile payments, which posted strong monthly increases through 2012, fell by almost 1 percent in January, the month the Kenyan transaction tax was first levied. The decrease reached almost 5 percent by March, according to The Economist.