Excise Duty On Mobile Phone Usage Not Justified

by Gerhard May
2006-08-21 08:01:34 | Viewed 5015 times

In Africa, mobile communications systems are playing the role fixed-line networks are playing in developed countries.

Mobile communication services are providing basic access services as well as advanced data services and VAS.

Private sector initiatives have accelerated business dynamics and international standardisation, reducing handset and infrastructure cost as well as simple subscription procedures have boosted the growth of mobile phone customers.

The ratio of mobile to fixed in Kenya stands currently at around 20:1.

RESEARCH BY The London School of Business (2001) has shown that in developed countries, fixed-line telecom networks were responsible for one third of the gross domestic product growth between 1970 and 1990. This same phenomenon of GDP growth is now being witnessed in Africa because mobile telephony has become the communication system of choice.

Mobile information and communication technologies are powerful drivers for growth. In fact, according to studies conducted by the GSM Association, there is a strong correlation between countries that have high mobile penetration and high nominal GDP per capita, that is as mobile penetration is encouraged a definite growth in GDP is also demonstrated.

IN KENYA, the government has long recognised the vital role that telecommunications infrastructure plays in development and GDP growth yet it continues to apply an excise tax of 10 per cent on mobile phone usage.

By definition, excise tax is a tax usually applied on goods or services whose consumption leads to a certain degree of socially negative consequences.

However as shown, mobile telephony is a driver of economic growth. Taxi drivers use their phones to pick up passengers, farmers to scout for the best prices without travelling all the way to the market, and plumbers and tradesmen can easily be reached.

Many businesses cannot function effectively anymore without a mobile phone. It has become an essential tool and a cost of doing business and no longer the luxury toy that it once was.

MOBILES CAN improve economic growth, quality of life and social capital:

• Mobiles have a positive and significant impact on economic growth. This impact may be twice as large in developing countries as in developed countries.
• A developing country with an extra 10 phones per 100 people between 1996 and 2003, would have had GDP growth 0.59 per cent higher than an otherwise identical country.
• Empirical studies in South Africa and Egypt showed that 62 per cent and 59 per cent respectively of the small businesses had increased profits as a result of mobile phones. In many cases mobile phones are the only means of communication.

By removing the excise duty, the government will make communication more affordable to the average Kenyan, which in turn will improve penetration of mobiles phone into Kenya.

Empirical evidence has shown the correlation between higher penetration and GDP growth. It is obvious that when the economy (and thus GDP) grows, there is a correlated increase in the tax revenue collected. Additionally, if the government of Kenya is committed to driving growth, then it should encourage mobile penetration by removing the excise tax.

Gerhard May is the chief executive of Celtel Kenya Ltd

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