The slapping of new taxes on internet promises to topple Kenya from its top position as one of Africa’s most affordable internet locations.
Mobile and internet companies have in the last two weeks been struggling with how to prepare their customers for the new price changes that will make internet usage costlier. Some operators have been offering a new bundle to soften the blow to their consumers as the inevitable finally sinks in.
The new taxes will affect over 44.1 million subscribers according to the latest data from the Communications Authority of Kenya (CA). Though there is still a confusion on the effective date, it is only a matter of time before players pass on the 50 per cent excise tax hike to their customers.
A report by Citi says operators may be delaying the implementation of the new telco tax from 10 per cent to 15 per cent due to competitive reasons.
This means that for every Sh100 of airtime bought, the State will now take Sh15 in excise taxes up from the Sh10 taken previously. The biggest dilemma is how to pass this to consumers. “We see the risk. There may be a delay in price adjustments for competitive reasons, which would negatively affect revenue and earnings, beyond our assumption of one-quarter impact,” the Citi research reads.
“Demand may also be weaker than we assume, should prices be adjusted.” Some players say they are still in a limbo on the effective date and as soon as the Government clarifies the period, then consumers will have a taste of the full impact of the new taxes.
The taxman is also expected to explain how exactly they will tax data and whether the taxation will spread all the way to cover the undersea cable operators all the way to the consumer. “The wording of the (draft) Finance Bill with regards to money transfer services lacks clarity and, in our view, leaves room to enforcement authorities to apply higher rate (than 12 per cent) to some of M-Pesa services, for example, those offered in partnership with banks,” the report notes.
The third risk outlined in the report is in regards to the regulatory decisions that remain outstanding. “Even if the tone from telecom regulator appears to have softened and macro: budget reviews are done every year, further unfavourable decisions cannot be ruled out.”
It is not yet clear how much of the taxes the operators will be willing to absorb but if they were to take part of the costs, it would mean they will have to take a dent on their profitability. The biggest operator Safaricom is expected to take a beating on its revenues given that consumers are price sensitive.
In the last financial year, Safaricom made Sh95.64 billion in voice revenue up from Sh93.46 billion in the previous financial year. Mobile data revenue grew from Sh29.3 billion to Sh36.36 billion during the period. With this, the new taxes will see the Government easily collect Sh5 billion more this year. Kenya is one of the countries with the fastest internet on the continent.
[Video] Taxing mobile services: Internet services to attract 15% charge, mobile money transaction fee up 20%: Mobile Telephone service providers in the country remain in the dark over the implementation of ex.. https://t.co/VdMsMNpQW5
— Breaking News (@News_Kenya) October 15, 2018
via @PerilOfAfrica New tax threatens Kenya’s affordable internet service https://t.co/37TSDEoh1y **AUTOMATED NEWSFEED pic.twitter.com/aCS7HtGnGy
— MarthaLeah Nangalama (@mlnangalama) October 16, 2018
New tax threatens Kenya’s affordable internet service https://t.co/NY3xzGnlzm
— Crwe World (@CrweWorld) October 16, 2018