Finance Minister Njeru Githae has said that the introduction of a 10% excise duty on mobile money transfers and any other fees charged by other financial institutions will not affect the consumer in anyway. The Minister clarified that the duty will be paid by the service providers and will not affect the customers in any way.He further warned that the government will monitor the mobile operators to ensure they don’t make any secret adjustments.
This was in a bid to quell the fear that the the introduction of such tax was bound to increase the consumer charges on mobile money platforms particularly Orange Money and M-Pesa.
However, Nikhil Hira, a Tax leader at Deloitte EA told pesatalk, that increased consumer charges seem inevitable. “Clearly this is going to make it more expensive unless (which seems unlikely) the person making the charges is prepared to absorb the tax,” he says.
Presently according to Kenya Weekly Wrap Report, Safaricom contributes the bulk of taxes from the sector since it generates over 80% of industry voice revenues- taxed at a rate of 26% (10% excise duty and 16% VAT). Safaricom is also the only profitable company in the sector limiting corporate tax to it. As the new tax on mobile money transfer is being introduced, Airtel cut its prices to zero across all networks, which can only raise alarm on the part of treasury on the pricing behavior of the telco with regards to tax revenues.
[Read: Mobile Money Transfer Costs Could Go Up]
According to Mr. Hira, excise duty has traditionally been charged on consumer products mainly alcohol and cigarettes but also other items such as soft drinks, bottled water etc. It is quite often referred to as a “sin tax.” Clearly further increases in these taxes (although some are proposed) are becoming unpalatable. The government is facing significant pressure on revenue collection so new sources of taxation are becoming essential.
A few years ago excise duty was introduced on mobile air time which has certainly been very lucrative as far as government revenues are concerned. These new provisions seem a natural extension particular when you consider how much money is passing through cellular phone service providers.
The treasury anticipates to gather KES 4.5 billion immediately from the mobile money sector which has grown by 7000% over the last 5 years. Earlier still, there were also propositions of raising general tax rates on income tax, Pay As You Earn (PAYE) and Value Added Tax but the minister assured that it wont happen after reviewing and taking into account the economic situation and the country’s development agenda.