Telecom subscribers will dig deeper into their pockets in the next financial year for voice and data services as the government intends to increase excise duty on airtime.

In the proposed 2014/2015 national budget, the taxman seeks to increase excise duty on airtime from current eight per cent to 10 per cent.

MTN has already warned that an increase in excise duty will prompt telecom operators to pass on the burden to subscribers.

The government’s decision to increase taxes on airtime is motivated by the need to increase the tax base as it seeks to reduce dependence on aid.

All the three operators — MTN, Tigo, and Airtel — provide voice and data services.

The new tax on airtime comes at a time when the industry is grappling with other high charges like roaming fees across the region as well as interconnection fee.

READ: Kenya calls for lower roaming rate in EA

Although the interconnection fee has been going down for some time now, operators still consider it to be high, leading to another burden on consumers.

Currently, the interconnection fee stands at Rwf25 from Rwf28 and the regulator plans to reduce it further to Rwf23 next year.

High roaming charges

Calls from Rwanda to Kenya, Uganda and Tanzania are expensive compared with those to Europe and America because of high roaming charges.

Negotiations between industry regulators and telecom operators in the region to scrap or reduce roaming charges are yet to bear fruits.

Rwandan telecom players are also suffering from dwindling Average Revenue per User (ARPU), which stands at Rwf1360 per month. This is the lowest in the region

The low ARPU in Rwanda means that majority of mobile phone users in the country are low-end subscribers, whose capacity to spend on mobile value added solutions is low, thereby depressing the effective rate of revenue realization per minute for the operators.

However, experts note that increasing excise duty on airtime is not necessary as it will hinder the penetration of mobile and Internet services in a country whose telecom penetration is still low.

As of end of February this year, the total mobile phone subscribers stood at 6.8 million, representing 64.5 per cent penetration rate.

Sam Nkusi, the chairman of Liquid Telecom told government to focus on increasing the number of subscribers where revenues would be realised through volumes instead of taxing a small subscriber base.

“Already telecoms are among the large tax payers, and increasing taxes will lead to an increase of cost by services providers thus affecting end users whose incomes have not increased,” said Mr Nkusi.

Mr Nkusi noted that although government needs taxes to finance its expenditure, affordability of services for citizens should be considered as well.

As a result of increased competition in the telecom industry, consumers have benefited from reduced calling rates and improved services.

For instance, all the three telecoms have introduced promotions and bonus payments on airtime for subscribers.

Implication on subscribers

MTN Rwanda said an increase on exercise duty is likely to be transferred to the end user.

“The implication of this tax increase could also affect the price to the end customer for all MTN services provided. We are still evaluating the impact of this tax on the other areas of our business, “said Teta Mpyisi, corporate communications and public relations manager.

In fiscal year 2014/15, total tax revenue collections have been projected at Rwf906.8 billion compared with Rwf782.5 billion of 2013/2014 .

The expected recovery of the economy as well as implementation of ongoing and new reform measures will allow Rwanda Revenue Authority to meet this revenue target.

In the area of direct taxes, an increase from Rwf326.1 billion in 2013/14 to Rwf379.2 billion is projected.

Loss of revenue

Taxes on goods and services are rising from Rwf397.7 billion in 2013/14 to Rwf461.5 billion, showing an increase of Rwf63.8 billion.

The estimated revenue from international trade is Rwf66.1 billion compared with Rwf58.7 billion in 2013/14 financial year. The modest increase is attributed to the ongoing shift in the direction of trade with more imports, especially consumer goods, coming from the East African Community (EAC) member countries.

In line with EAC Common Market Protocol, these imports pay no import taxes, resulting in a significant loss of revenue.