Telcos say tax proposals to hurt sector

Safaricom CEO Peter Ndegwa during the release of the telco's full-year results for the 2021/22 financial year. [File Courtesy]

Telecommunication companies Safaricom and Airtel are opposed to the proposal limiting the carry-forward period of tax losses to five years, as proposed in the Finance Bill, 2025.

According to Safaricom, intensive infrastructure projects rely heavily on the indefinite carry-forward of tax losses to remain financially viable over long investment horizons

Presenting their memorandum to the National Assembly Committee on Finance, Safaricom said predictable tax policy is essential for long-term investment planning, and abrupt changes, such as capping tax loss carry-forwards, undermine investor confidence.

"In line with international best practices, we propose that this proposal be amended to limit the carrying-forward period of tax losses to 10 years," Safaricom said.

Airtel proposed that the section should be retained as it is currently or be amended to state where the ascertainment of the total income of a person results in a deficit for a year of income, the amount of that deficit is an allowable deduction for that year and the succeeding nine years of income. It said implementation as the bill proposes will lead to erosion of investment viability in capital-intensive sectors, undermine investor confidence and predictability, and is a contradiction of national investment and industrialisation goals. The telcos also gave their views on the amendment of the VAT Act to reduce the period for applying for a VAT refund on bad debts from two years to 12 months.

According to Safaricom, currently, there is a three-year waiting period before businesses can apply for a VAT refund on bad debts.

The firm said that with the Finance Bill proposals, the refund process can extend by an additional four to 16 months due to audits, disputes, or partial payments, further delaying fund recovery and exacerbating financial challenges.

"The Finance Bill, 2025 proposal to cut the waiting period from three to two years is a positive step, but it does not adequately resolve the cash flow challenges caused by delayed VAT refunds on bad debts," Safaricom said.

The company made a proposal to further reduce the period within which taxpayers are allowed to apply for a refund of VAT paid on bad debts from the proposed two years to one year.

"The proposal would lead to enhanced cash flow for businesses, increased tax compliance, improved revenue collection, and greater business confidence." Airtel has also raised an issue on the proposal for investment allowances on spectrum licences, saying telecommunication companies invest substantial capital in securing spectrum licenses, yet they are currently ineligible to claim investment allowances on these expenditures.