Recently-imposed value added tax (VAT) on ICTs including mobile phones has slowed the growth of uptake in Kenya, a study has revealed.
The Kenyan VAT Act came into force in September last year, meaning Kenyans have begun paying 16 per cent tax on various formerly excluded goods, including ICT equipment and software.
Speaking to HumanIPO, Dr Tonny Omwansa of the University of Nairobi, who led the “Re-introduction of VAT on ICT Equipment in Kenya” study, said although there were more people buying mobile phones, the rate had slowed down as compared to when there was no VAT on devices.
“In 2013 there is empirical evidence that sales have gone down, as a market there is overall growth but VAT has slowed the growth rate,” said Omwansa.
According to the report government has a key role to play as far as supporting the growth and development of mobile communication and wireless data. This can take place through the creation of a favourable environment for penetration growth and backing the emergence of a local content and service industry.
Levies set by the governments have a significant impact on the speed of adoption as well as usage of telecommunications services, especially to people with low incomes, and therefore revenue authorities should look into ensuring the tax structures put in place have the broader national development in mind as opposed to just focusing on short term tax collection, the report advised.
“As devices become more expensive, it is likely that consumers will opt for less feature-rich options, thus reducing the potential impact of ICTs and making the attainment of Kenya’s national broadband strategy to become a knowledge-based society and economy, among other target objectives, harder to achieve,” read part of the report.
When the government zero-rated ICTs together with basic goods and services in 2009, there was a surge in not only uptake of mobile devices but penetration as well, but the report said the reintroduction of VAT would have a negative impact on the growth of the sector and on Kenya’s image as the leading digital economy in Sub-Saharan Africa.
The study, which relied on both qualitative and quantitative data sets, desk research and informant interviews with key stakeholders, including regulators, academia and policy makers, recommended dialogue between industry stakeholders to stem the situation.
“There is need to generate a conversation as industry if policies are to be revised and assess their effectiveness in the market,” the researcher said.
“We are going to engage stakeholders in developing a paper on how we can bring the total cost of ownership of ICTs down.”
According to the study, the government is best placed to steer the creation of stimulating environments for open dialogue with diverse participation, with Ministry of ICT cabinet secretary Dr Fred Matiangi telling the Connected Kenya conference recently the government was aware of the issue and was concerned, and promising to look into the matter.
Omwansa said offering incentives to manufacturing companies to compensate for the VAT bite to help make products cheaper and give them a sense of fairness in the market will also helping to deal with the effect of the added levies.
Image courtesy of Shutterstock.
