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Mobile airtime new cash cow for State as it nets Sh26.3b

By Dominic Omondi | December 6th 2019

Airtime is turning into a cash cow for the government as Kenyans spend more time on their mobile phones.

The latest official data shows that excise taxes from airtime have grown fast, overtaking similar levies from wines and spirits and cigarettes combined.

Last year, the Kenya Revenue Authority (KRA) collected excise taxes valued at Sh26.3 billion from airtime, a significant growth of 63 per cent from Sh16.1 billion that the taxman collected the previous year.

Although excise taxes on wines and spirits increased from Sh8.8 billion in 2017 to Sh11.7 billion last year, they still could not match that of airtime.

Not even when you add what KRA collected from cigarettes in excise taxes valued at Sh12.8 billion.

This came in the wake of a move by the National Treasury to slap mobile money transfer services, airtime and Internet data with an excise duty of 15 per cent, up from 10 per cent.

Airtime tax collections hit Sh19.7 billion in the nine months to March, new KRA data shows.

By December last year, only excise taxes on beer had performed better than airtime, raking in Sh27.6 billion.

Punitive taxes on beer have negatively affected the consumption of alcoholic beverages, with many revellers turning to cheap home-brewed liquor.

Experts reckon that airtime is seen as low-hanging fruit by most governments in sub-Saharan Africa as it is a booming sub-sector that is easy to tax due to the increasing turnover of transactions and the formal nature of such transactions.

“The increasing tax burden on the sub-sector and the consumers, though has raised concerns that the massive gains made in financial inclusion in developing countries made possible by retail electronic payments platform via mobile phone transactions may be reversed, resulting in a return to cash transactions,” said former Central Bank of Kenya Governor Njuguna Ndung’u.

Prof Ndung’u also warned that a higher tax rate on low-level retail electronic transactions mostly levied on low-income earners who are sensitive to transaction costs may discourage the use of mobile phone-based transactions. This, he said, may see them revert to cash transactions to evade taxes and so less tax revenue.

Find alternatives

So far, the increased taxation has not had a negative effect, with consumers yet to find alternatives.

However, in the long run, warn experts, they might find other channels of communication that do not need airtime. The Finance Act, 2018 increased excise tax on airtime to 15 per cent from 10 per cent, making data, call and SMs services more expensive for consumers.

Between July 2016 and June last year, Kenyans spent a total of 75 billion minutes talking on their mobile phones, or 143,086 years. They sent a total of 55.2 billion SMSs during this period.

This means that for the entire year, the average Kenyan spent two days just talking on their mobile phone.

Mobile phone activities have increasingly been shifting from the traditional telecommunication services of calling and SMS to data.

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