VAT will not affect mobile phones penetration, says KRA

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A collection of old Nokia mobile phonesThe Kenya Revenue Authority (KRA) has stated that VAT charge on handset devices will not hamper mobile growth in the country, saying that developments in the sector have been fueled by rapid drop in airtime costs across all networks rather than cheap handsets.

This was said by KRA commissioner general John Njiraini while speaking at the Africa Tax Administration Forum in Nairobi Kenya.

“Lately for example, players in the mobile telephony sector have challenged the new VAT law claiming that imposition of VAT on mobile telephones will erode Kenya’s rapid gains in mobile phone penetration,’ said Njiraini, “Where is the evidence that penetration was driven by tax regime? In any case, in the mobile business, the purchase of airtime may over time cost many times more than the initial purchase of equipment.”

Njiraini said that the communication sector has still recorded tremendous growth, despite the fact that mobile airtime is charged 16 percent VAT and 10 percent excise tax.

“My hunch is that Kenya’s rapid growth in the mobile sector is more related to the drastic fall in airtime costs which over the last 10 years fell by over 90 per cent due to competitive pressure,” he added.

The commissioner urged governments to use informed research to make decisions, to prevent them against falling into external pressure from industry players.

Last week, ICT players led by Nokia vice president for corporate relations in India, Middle East and Africa Jussi Hinkkanen said that the country’s mobile penetration is at 30 percent, urging the government to consider this before making a final decision on the VAT Bill 2013.

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