High taxes ‘hit swift growth of telecoms’
As the fastest growing sector of the economy, telecommunications could be used to boost recovery from the global economic and financial crisis, stakeholders have said.
But to be able to grow further, the government should refrain from increasing taxes arbitrarily as it did last year as this would translate into higher operational costs.
While speaking to The Citizen, the sector’s stakeholders said the removal of tax exemptions on ‘deemed capital goods’ in the 2009/10 budget had the effect of increasing operational costs.
Now they have to pay customs duties and value added tax (VAT) on vital operational equipment such as switches and towers. This, among other things, has decreased the recent momentum to build telecommunications in remote areas.
Tax on mobile phone handsets is also a big concern. It makes the gadgets unaffordable to many among the unsubscribed population therefore impeding operators’ profit margins and reducing connectivity.
“When tax changes are introduced we should be given a grace period to prepare for such changes. Last year we were not given enough time by the Treasury to adjust and therefore the industry faced various hurdles,” says Mr Khaleed Muhtadi, the Zain Tanzania managing director.
Even as the telecommunication players seek for tax reduction from the government, the Treasury is optimistic that the industry has all potentials to be the engine of this year’s national economic growth.
Statistics from the Treasury show that telecommunications was the fastest growing sector after growing by 21.9 per cent in 2009, followed by the financial intermediary and electricity and gas sectors that grew by nine and 8.4 per cent respectively.
Telecommunications was one of the four sectors that recorded positive growth in 2009 out of the 19 sectors.
Telecommunications is also now a multibillion-shilling enterprise led by mobile telephony, which currently generates over Sh2 trillion in revenues annually.
Its growth is reflected in the expansion of the mobile phone subscriber base from 200,000 in the year 2000 to about 17.4 million customers in 2009.
Although, the Tanzania Communication Regulatory Authority (TCRA) is of the view that its engagement in consultations with players to bring the tariffs down have succeeded, experts say multiple taxes and charges make airtime in Tanzania expensive.
“There are other challenges that are facing the industry that cause high tariffs,” says Angelica Tarimo, a tax manager with PricewaterhouseCoopers.
She notes that tax costs that the industry is not currently exempted from play an important role in pushing the pricing of the telecommunication services higher.
In 2002, there was an introduction of excise duty at 5 per cent on mobile phone airtime. The rate was increased to 7 per cent in 2006 and in 2008 it shot to 10 per cent, which has remained in place to date.
Moreover, VAT is chargeable at 18 per cent on an excise duty inclusive amount, resulting into an effective usage tax of 29.8 per cent.
In addition, a further 1.1 per cent is charged on the remaining balance by way of the 0.8 per cent TCRA royalty and the 0.3 per cent service levy payable to the local government.
Therefore, for every Sh1,000 voucher, Sh303.8 is payable to the government, leaving the operator with Sh696 out of which to pay for operating costs.
An economist who spoke to The Citizen on condition of anonymity said the telecommunication sector had transformed from a “luxury” industry to an important vehicle for economic growth and thus needs incentives.
He cited examples of Rwanda where ICT had contributed a lot in economic gains.
The national ICT broadband backbone was recently switched on in 16 regions after the completion of its first phase of construction.
Stakeholders applaud the move as it is expected to result into increased efficiency and reduced Internet charges in the country.
“With such a reliable connectivity, every one should think of how they can tap into the ICT potentials in their areas of interest, whether in tourism, education, or in health,” said Dr Zaipuna Yonah, the director for Information and Communication Technology at the ministry of Communications, Science and Technology, when speaking to The Citizen recently.
And last Friday the Tanzania Revenue Authority commissioner general, Mr. Harry Kitilya, said the body was set to use ICT potentials in curbing tax evaders and also in expanding the tax base.
However, players insist that the completion of the national ICT broadband backbone, which has cut the capacity of transportation costs by nearly 90 per cent, should be supported by other mechanisms to reduce costs for internet and data as well.
Mr Sanctus Msimbe, the SimbaNet corporate business manager, said despite broadband capacity charges, internet bandwidth costs from international providers were important in determining the pricing of Internet and data connectivity to consumers.
The backbone is the terrestrial continuation of the fibre optic submarine cables that landed in Dar es Salaam recently, including Seacom.
“We had to pass through Kenya for us to reach the landlocked countries of Rwanda and Burundi, but with the national backbone we shall easily penetrate through all regions in the country and reach those across the borders,” said Seacom Tanzania managing director Anna Kahama-Rupia.
Ironically, Dr Yonah hopes that with the completion of the national broadband backbone construction and with the availability of two submarine cables, the country would have a reason to boast as the ICT hub in the region.
“We have a well positioned country, geographically, to supply the ICT link ups to the landlocked neighbouring countries,” he says.
He says countries such as Zambia, Botswana, Democratic Republic of Congo and Malawi have already expressed interest to use the newly built national ICT backbone so as they can get international links via the submarine cables that landed at the Indian Ocean shores recently.
Mobile phone firms have recently reduced tariffs following an intensified tariff competition that has seen every mobile operator try to come up with lower tariffs.
Some analysts are optimistic that the fibre optic cable and the national ICT infrastructure would ultimately lead to further reduction of communication tariffs.
In fact, some mobile phone operators are looking into the cut-back on data tariffs, which will make Internet connections through mobile phones affordable thus expanding the subscriber base.
Source – The Citizen