A day before Safaricom announced a record Sh72 billion net profit, the national statistician unveiled yet another milestone recorded by three players in the telecommunications sector.
The Economic Survey 2020 by the Kenya National Bureau of Statistics (KNBS) showed that last year, airtime overtook beer to become the government’s leading source of excise duty, what is informally known as a ‘sin tax.’
Safaricom is by far biggest dealer in airtime, and the government earns a lot from it because Kenyans cannot operate without it yet. This means a lot of the tax revenue earned comes from Safaricom, which controls close to 70 per cent of the voice, SMS and data markets.
Last month, when KNBS unveiled the new consumer price index (CPI), or more simply the cost of living index, airtime emerged as the single-largest expenditure item for most Kenyans.
“Mobile airtime has the highest expenditure in the new CPI, with an overall weight of 5.496 per cent, having changed from the 3.08 per cent recorded in the previous CPI,” said KNBS Director General Zachary Mwangi.
Chunk of income
Matatu fares and rent for single rooms are the second and third-biggest consumer items, respectively. Other items that take a chunk of people's incomes are white bread, milk and beef with bones.
Further, a 2012 study on mobile usage among low-income earners found that some Kenyans will forego spending money on food and other essential expenses so as to buy airtime.
“One in five respondents interviewed had foregone some usual expenditure in favour of reloading their phone with credit,” read part of the study commissioned by the World Bank.
The respondents who sacrificed their usual expense to buy airtime went without as much as Sh999 per week, according to the study.
“The most common expenditure foregone was the purchase of food, followed by the purchase of bus fare. During the focus group discussions, it emerged that the meals foregone were sometimes entire meals, meals for the family, or were cheaper meal options chosen,” said the report.
Safaricom has benefited from this airtime craze, consistently coming up with new products aimed at nudging subscribers into spending more on airtime.
About a third of Safaricom revenue on airtime in 2017, or about Sh43.5 billion, was earned through Okoa Jahazi, a service that lets subscribers access airtime on credit.
Moreover, as lifestyle, consumer behaviour, tastes and preferences changed, some products were discarded from the basket by KNBS, which also meant some businesses had seen their relevance wane.
Other items, such as mobile money transfers found their way into the CPI. Other additions were TV subscription fees, decorder charges, courier services and garbage collection.
Before airtime, the government's lead source of excise duty, which got the moniker sin tax due to the fact that it follows people’s behaviour, was alcoholic drinks. Not anymore.
Last year, the Kenya Revenue Authority (KRA) collected Sh28.6 billion in excise duty on airtime from the country's three telcos. This overtook the Sh27.7 billion the taxman extracted from beer.
Mobile money transfer services are yet another of Safaricom’s products that have become a cash cow for the government.
A move by the National Treasury to slap mobile money transfer services with an excise duty of 15 per cent, up from 10 per cent, saw the government squeeze Sh27.4 billion from financial transactions last year. This was an increase of 172 per cent from Sh10.1 billion collected from financial transactions, which also includes levies on bank charges, in 2018.
The Finance Act, 2018 also increased excise tax on airtime to 15 per cent from 10 per cent, making data, calls and SMS services more expensive for consumers. Overall, Safaricom last year paid Sh35 billion in taxes.
Although Safaricom has diversified its revenue stream from traditional telecommunications services like calling and sending messages, it is through airtime that it has its strongest grip on consumers.
“Airtime is so critical,” said Bitange Ndemo, a former ICT Permanent Secretary. “Some people are using the airtime to call so they can find a kibarua (menial work).”
Census data for 2019 showed that 20,694,315 individuals aged three and above owned a mobile phone. Most of them were actively used these gadgets to call, text or just browse on the Internet.
Total domestic traffic increased from 55.9 billion minutes in 2018 to 58.7 billion minutes last year.
It is not just on calling that Safaricom has been active, but also on providing Internet services. It has teamed up with Google and Teleone to offer consumers 4G-enabled phones that they can pay for slowly.
“Lipa Mdogo Mdogo will help the mwananchi who earns their wages daily acquire a range of smartphones and pay in easy daily instalments for as low as Sh20, while enjoying all the benefits that comes with being digitally connected,” said Safaricom CEO Peter Ndegwa during the release of the company's results yesterday.