A planned rise in internet tax is set to hit Kenya’s digital economy pushing up the prices of airtime and data bundles as telcos will be forced to pass the cost to consumers.
The National Assembly Finance committee voted to increase excise duty on telephone and internet data services to 20 per cent from the current 15 per cent.
This was not included in the Finance Bill and is a proposed amendment that is supposed to take effect starting July 1.
This means that for every Kes 100 of airtime you buy, the taxman will now take Kes 15 in excise taxes up from the Kes 10 taken currently.
In 2018, the government increased the telco tax from 10 per cent to 15 per cent, a cost that was passed on to the consumers.
Safaricom raised the cost of calls by 30 cents, and SMS by 10 cents while Zuku increased the costs of subscribers who use the 10mbps package to Sh3,999 up from Sh3,500.
The looming increase is set to push operators including Safaricom, Airtel, Zuku, Jamii Telkom and Telkom to review their customer charges of voice and internet bouquets.
Analysts say the new tax is likely to hurt innovation and jobs – especially for the self-employed youths who rely on internet connectivity for their virtual businesses.
The new tax may also heavily affect the use of digital government services considering Kenya has increased reliance on digital payment platform to collect tax, run human resource and payroll, conduct digital procurement and e-citizen services such as issuing a driver’s license, birth certificates, passports and property transfer.
Services such as drivers’ licenses, land transfers, city parking and license fees are done online, and the tax hike will affect data costs which will in turn affect internet access and the penetration levels.
In a 2019 survey former Central Bank of Kenya Governor Prof Njuguna Ndung’u notes that taxing airtime risks substantially slowing Kenya’s pace to a fully digital economy.
“Taxation on mobile phone airtime and financial transactions may not expand the tax base significantly but, rather, may reverse the gains on retail electronic payments and financial inclusion,” he said.
Excise duty on airtime and financial transactions was first introduced in Kenya in 2013 as the Treasury sought fresh avenues to realize the ever elusive revenue targets.