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Monday, December 11, 2023

Taxman criticises proposal to cut mobile calling rates


Commissioner for Domestic Taxes Rispah Simiyu says country will lose Sh2.45 billion per year in the proposed changes.

The Kenya Revenue Authority has criticized plans by the Communication Authority to reduce the current mobile phone calling rates, arguing that the move is likely to negatively impact the collection of revenue.

KRA commissioner for domestic taxes Rispah Simiyu said that the decision to reduce the current mobile termination rates and fixed termination rates, will impact VAT, excise and corporation tax remittances.

Speaking during a meeting with the National Assembly committee on communication information and technology, Simiyu said that KRA is likely to lose about Sh2.45 billion per year, in the proposed changes.

CA had earlier this month announced plans to reduce the current mobile termination rates and fixed termination rates from Sh0.58 to Sh0.12. 

“Safaricom’s market share is 65.6% and based on the approximate call termination revenue per year of Sh5.1 billion, the expected revenue loss by Safaricom, if this is effected, will be Sh4.04 billion.

“In this regard, KRA will be losing Sh 647 million in VAT, Sh606 million in Excise Duty, and Sh1.2 billion in Corporation Tax, totaling to Sh2.45 billion yearly,” said Simiyu.

The KRA commissioner however, noted that since Telkom and Airtel pay Safaricom for mobile termination, this move will give them greater price flexibility hence offering effective competition and boosting their revenue given the reduction in costs.

She added that the government on the other hand, which has a 35% shareholding in Safaricom, may suffer a reduction in revenues as a result of this reduction in termination rates, leading to a reduction in dividend payout to the government. 

Simiyu made the comments during a meeting with the committee chaired by Dagoretti South MP John Kiarie as part of the ongoing review of the mobile termination rates which were announced by CA.

CA, while making the announcement early this month, said the new rates will be implemented starting March next year. CA also added that the current SMS termination rate of 0.05 per SMS will on the other hand remain unchanged.

The MTRs and FTRs are the costs that operators charge each other to allow customers to communicate across networks. Currently, all the telecommunications service providers have been implementing an MTR and FTR of Sh0.58 per minute.

Other stakeholders who also appeared before the Kiarie-led committee also included Competition Authority acting Director-General Adano Roba, who supported the move to lower the termination rates.

Roba noted that the reduction of the rates will reduce barriers in the telecommunication market, thereby preventing abuse of dominance and narrowing differences between on-net and off-net prices.

The move, Roba added, will also help increase customer choice, reduce cost of doing business, increase voice traffic and operator revenue, hence increasing government tax revenues.

“This will ultimately generate efficiency in the telecommunications sector for the benefit of Kenyan consumers,” said Roba.

He further cited a study conducted by CA which expounded on the need to implement low termination rates as has been the trend worldwide in the sector, with some jurisdictions like Canada and India implementing zero rates, and also the need for symmetric termination rates between large and small operators.

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