Tax on telecommunications to be investigated

The Government will investigate the introduction of a turnover tax on mobile telecommunication companies in the 2019 Budget.

This is among six possible reforms the Government will be investigating as part of the continuation of the Medium Term Reform Strategy in 2019.

According to the 2019 National Budget Volume 1 Economic and Development Policies, the Government says the aim of the tax will not be to discourage the use of voice and text.

It says since mobile telephony has become an important part of the consumption basket, there is an opportunity for the sector to make a further contribution to funding the country’s development aspirations.

The Government is justifying the potential tax saying the imposition of telecommunications tax is a common phenomena and countries such as Kenya, Tanzania, Rwanda, Gaon and Uganda, have such a tax, with most imposing the tax on cellular airtime in addition to VAT or GST.

The telecommunication tax on telecommunication companies is based on two underlying reasons:

  • Above normal profits to the operators because of limited spectrum – The limited competition in the mobile telecommunication sector facilitates implicit or explicit collusion  among service providers leading to higher service prices than that inn a fully competitive market,. Hence allow these few operators to make supernormal profits.
  • Complex pricing schemes by the operating companies that make the tax base difficult to define – The Internal revenue Commission, has faced enormous challenges in assessing and auditing the mobile telecommunications carriers. The difficulty of policing complex pricing formulas used by these companies has meant that the assessment of tax returns are delayed resulting in under collection of tax revenue.

The Government says to partially off-set the increased tax collected from the introduction of this new revenue measure the 30% excise on play boxes, as part of the removal of excise rates of certain luxury goods.

The Government adds the tax has the potential to raise revenue because of its inelastic nature as exhibited by countries that have adopted this reform.

Other tax measures to be investigated include:

  • Small to Medium Enterprise (SME) Taxation Regime;
  • Introduction of Capital Gains Tax;
  • Excise on sugar sweetened beverages (SSB);
  • Minimum Tax; and
  • Review and simplification of depreciation schedules.
Cedric Patjole