Uganda’s new tax will raise calling rates, hurt integration

Saturday May 18 2013

Mobile operators have opposed the introduction of the new tax, effective July, saying it will hurt their margins.

The cost of calling across the East African region could rise from July following a new tax on calls terminating in Uganda, a route Rwanda has also taken.

Uganda’s moves comes hot on the heels of Rwanda, signalling that roaming charges on intra-East African calls are set for a rise.

Mobile operators have opposed the introduction of the new tax, effective July, saying it will hurt their margins and increase calling rates in the region.

Mobile operators say Uganda’s planned introduction of a $0.2-0.25 levy per minute and Rwanda’s current charge of $0.22 per minute on all incoming calls could see foreign operators respond by levying similar charges on calls generated from the two countries as well as encourage international operators to transfer their calls through routes (bilk carriers) that would be hard for the government to monitor, potentially denying them millions in tax.

The East African Communication Organisation (EACO) said high taxes on calls force operators to increase tariffs, in the end affecting customers and traders in the region, working against the efforts to fully integrate as a bloc.

“It is a dilemma because governments need the money from taxes to facilitate development, whereas the mobile operators also need to make profits,” said Hodge Semakula, the EACO boss in Kigali, Rwanda.


In August last year, the Rwanda Utilities Regulatory Authority (Rura) introduced a $0.22 tax per minute on all incoming calls to Rwanda.

READ: Rura raises roaming tariffs by Rwf132

In response to this decision to raise the tax in Rwanda, regional telecom operators reviewed their call tariffs upwards to cushion themselves from the additional costs of calls terminating in the country. For instance, MTN Uganda and Vodacom Tanzania raised their call tariffs to Ush1,200 ($0.45) and Tsh700 ($0.43), up from Ush295 and Tsh349.8 per minute, respectively.

Similarly, UTL and Safaricom raised their tariffs to Ush899 ($0.35) and Ksh30 ($0.35) up from Ush450 ($0.18) and Ksh18 ($0.21) per minute, respectively, across all networks in Rwanda. The same could happen to calling charges in Uganda.

Safaricom, Kenya’s biggest mobile company, said if this tax is implemented, it will effectively raise the cost of terminating calls into affected networks in Uganda.

“As such, the obvious way to shield against this would be to raise retail tariffs to cushion against this cost increment,” the firm said in a statement, adding this would raise a barrier to East African customers wishing to call Ugandan networks.

Players said implementing this tax will shift a significant number of international minutes destined for Ugandan network operators to SIM gateways’ operators who do not pay taxes and cannot guarantee call quality.

“Surcharge on international incoming calls greatly increases the economic incentive for international operators to seek to bypass the normal route for bringing in traffic, choosing instead the ‘grey’ route of bringing in traffic via VoIP and ‘SIM gateways’ operators,” said Nzioka Waita, the corporate affairs director at Safaricom.

“The impact on network operators is a significant increase in the cost and complexity of radio network management. It prevents network operators from negotiating favourable rates for traffic going out of the country. In effect, Uganda and any other country that adopts this approach positions itself as an expensive calling destination and its network operators are treated in a similar fashion,” he added.

International calls, analysts said, have been emerging as big contributors to the revenues of most telcom firms in the region as more people participate in cross-border trade.

On Tuesday, Safaricom announced a 16 per cent jump in revenues to Ksh124.3 billion ($1.45 billion) for the year ending March from the Ksh107 billion ($1.25 billion) posted last year, with voice revenue as the major revenue generator, recording a 13 per cent growth to Ksh77.7 billion ($905 million).

READ: Safaricom’s net profits jump 39pc to hit $208 million

Uganda says the new taxes will be split between the government, mobile operators and the operator running the monitoring company, and projects that it will earn about $15 million per year from the new regime.

The Uganda Communication Commission (UCC) has proposed to double operators’ contributions to the Rural Communications Development Fund (RCDF) from one to two per cent of gross revenue.

While the Uganda telcom industry warns that the incoming traffic levy could potentially hurt revenue as callers revert to alternatives such as Voice over Internet Protocol (VoiP), the government projects it could raise Ush40 billion ($15.4 million) from incoming calls and Ush8.4 billion ($3.2 million) towards RCDF.

Mobile operators in Uganda say the new laws will make it hard for them to compete with regional peers.

“Uganda is becoming a difficult country to operate in because of the ever increasing taxes. We are currently paying value added tax on devices, unlike in Kenya where there’s no such tax; we are also paying excise on airtime, among other taxes,” said Maximila Byenkya, Orange Uganda chief legal and corporate affairs manager.

From the Rwanda tax, mobile phone operators earn a $0.12 share, while a $0.07 levy will be for maintenance of the International Traffic Verification System (IGTVS) and $0.03 as government revenue.

Executives at Warid Telecom (which was recently acquired by Airtel) in Uganda and Vodacom in Tanzania said they plan to analyse the impact of the cost increases before adjusting their call tariffs.

“We are aware that the new tax will increase the cost of telcom operations in Uganda. However we shall analyse its impact, before coming up with tariff adjustments,” said Shailendra Naidu, chief commercial officer at Warid Telecom.

A 2011 study by audit firm Deloitte of the effects of surcharge on incoming international voice call in West Africa shows that the costs per minute in Senegal, Ghana, Congo-Brazzaville and Gabon surged by more than 50 per cent and the number of international call minutes terminated on the countries’ networks decreased since the levies were introduced in 2009.

It also impacted negatively on the international competitiveness of the countries and drove up the cost of doing business at a time of global economic downturn. The Uganda Communications Commission Act 2013 empowers UCC to impose a surcharge on telecom companies for incoming calls as well as determine their contribution towards RCDF.

Additional reporting by Peterson Thiong’o and Kabona Esiara