The taxman is by definition unpopular, but an unscrupulous and brazen taxman is a tough master indeed. How else to describe Kenyan Minister of Finance Njeru Githae, who has watched the runaway success of the telecommunications sector in Kenya and now wants his piece of it to paper over cracks elsewhere.
“This sector is the fastest growing and so the taxman should also get his bite,” Githae said upon announcing that successful mobile money services like M-Pesa will now be subject to tax. Could he be any more clear? No mention of how “biting” into the sector will inevitably put prices up, threaten the profits of successful telcos like Safaricom and Airtel and potentially put the brakes on the sector’s emergence at just the wrong time. Githae wants his “bite” and he’s determined to have it.
And quite a bite it is too. The most recent Communications Commission of Kenya (CCK) report saw mobile money transfers again grow, with operators handling KSh192.73 billion (US$2.26 billion) in deposits between March 30 and June 30, a four percent growth on the previous quarter. Central Bank of Kenya data demonstrates that the value of money transferred through mobile platforms jumped by 41 percent in the first six months of this year. There are 19.5 million registered subscribers. It is also a driver of employment, with 49,079 active agents recorded. The government believes it can earn some KSh4.5 billion (US$52.7 million) from a 10 percent excise on mobile transfer transactions, covering the hit it is taking on voice revenues. Not to mention wage increases for doctors, teachers and lecturers.
There is absolutely no need to worry though. No reason at all. Not according to Githae, anyway. Because consumers will not have this extra cost passed onto them. Not a penny of it. Because Githae has said so. Kind of. “I expect this measure to give me close to Sh4.5 billion immediately but I do not expect any increase in airtime or the charges to the customer,” he said. “This tax is payable by the service providers; not the customer.”
Emphatic and clear. Or maybe not. If Githae truly does expect the operators to bear the cost of the tax, then he is probably the only person in Kenya with that opinion. Analysts say that no operator will be willing to absorb these new costs and that they will find a way of passing the cost on to consumers. And Githae might have at least checked with the operators before he expressed such an expectation.
Safaricom, likely to suffer most with M-Pesa having 14 million subscribers and reporting two million transactions per day, say they are still investigating the new tax policy, but CEO Bob Collymore has already said that “the cost will be borne either by the customer or by the shareholder of whom Government is a 35 per cent owner”.
Essar Telecom, which operators the yuCash mobile transfer service, agreed that consumers would be worst affected while slating the plans for impacting negatively on investment. “Overall if the proposal was to be implemented, the consumers will be worst hit as we will be unable to offer affordable mobile money services such as the sending money for free that we currently offer our subscribers,” said country manager Madhur Taneja.
Airtel’s Head of Corporate Communications and Public Relations Dick Omondi has said it is too early to comment on the matter, but it would be a great surprise if they did not pass on the cost to consumers given that only days before the new tax proposal they – perhaps rather foolishly, with hindsight – removed transfer costs on mobile money services in a bid to eat into Safaricom’s market share.
But users of mobile money platforms need not worry. There is just no need. Why? Because Njeru Githae said so.