Ratio Magazine :: The Inside Track to East Africa’s Economies - Kenya: Press Release: VAT Removal on Telephone Sets to Achieve Limited Penetration, Warns Zain Kenya

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Kenya: Press Release: VAT Removal on Telephone Sets to Achieve Limited Penetration, Warns Zain Kenya

Monday, 15 June 2009

Monday, 15 June 2009 --- Zain Kenya has welcomed the scrapping of VAT on telephone handsets but warned that the move might not trigger the anticipated increase in mobile penetration due to the tax burden on airtime.

Managing Director Rene Meza said 26% tax (VAT and Excise) levied on airtime was the major impediment in the efforts to increase the uptake of telephony services especially in the rural areas. A study by Deloitte, “Taxation and the Growth of Mobile in East Africa”, early this year indicated Kenya ranked fourth highest in Africa in terms of taxes levied on mobile phone services. It is estimated that a 10% increase in mobile penetration leads to a 1.2% increase in GDP.

Mr. Meza however welcomed the gesture by Finance Minister Mr. Uhuru Kenyatta as a “step in the right direction” for the telecommunications industry. “This will help boost our ultra low cost handsets rollout since we may not need to heavily subsidise low cost handsets aimed at low income users,” he said.

Under the growth stimulation package, the finance minister also announced plans to set up mobile computer laboratories in each of the country’s 210 constituencies to spur broadband usage following the launch of the fibre optic cable on the Kenyan coast last Friday. Said Mr. Meza: “The move will help increase the usage of data services which are still lagging far behind the uptake of the voice services. It will also become easier for operators to push other data related products.”
Mr. Meza also lauded the minister’s move to lower the cost of owning infrastructure by increasing the wear and tear allowance on telecommunication equipment from 12.5% to 20% terming it as an incentive that will encourage investments as investors will able to depreciate their assets at a higher rate hence over a short period.
Amongst the other incentives dished out to the telecommunications sector was a provision which will see players in the telecoms sector now offset their taxable income against the incurred purchasing fibre optic bandwidth for over 20 years. This will encourage them to actively consider the fibre option and extend the benefits that come with increased band width to the end.

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