If the proposed VAT bill stay as it is, mobile phones will start attracting 16% VAT very soon. It is because of this that phone manufacturers and other stakeholders, namely Nokia, Samsung, Huawei, Intel, Microsoft, GSMA and Ihub, met to deliberate on the situation. They thereafter released the joint statement below:
17th August 2013
PROPOSED LAW SET TO INCREASE COSTS OF MOBILE PHONES BY 16%
- 2009, Kenya waives tax on mobile phones leading to a 7% jump in mobile penetration in 6 months
- Mobile penetration now stands at 75% in Kenya
- December 2012 recorded 16.2 million internet users, indicating huge room for growth
- Subscriber penetration in Kenya has outpaced other countries, including Nigeria, due to a progressive tax regime
- Increased mobile penetration spurs growth for innovation hubs like iHub and Mlab with strong private sector backing
- Kenya’s innovation hubs have given rise to a developer ecosystem of over 20,000 talented youth and IT professionals
- These are highly skill information workers that will attract technical and high paying jobs to Kenya and across Africa
- Locally relevant IT innovations attract private investors, venture capital and other essential foreign direct investments
- The proposed tariff undermines Kenya’s young IT industry and cripples our momentum towards a digital economy
Mobile phone manufacturers operating in Kenya urge the President to reconsider imposing the 16% value added tax on mobile phones. The organizations who met yesterday afternoon argue that the best source of government revenue comes from a highly skilled and productive workforce, rather than taxing the very productivity inputs responsible for Kenya’s recent emergence as a hub for world class innovation on the mobile platform.
In 2009, the VAT exemption on mobile devices was supported by the Kenyan Government with the view to increasing subscriber penetration and driving down the cost of ownership so that more Kenyan’s could benefit from mobile technology. Since the exemption, Kenya has experienced a 25% increase in mobile penetration, and the correlation between growing mobile subscribers and economic growth is well established by the World Bank, McKinsey, GSMA and others. As a general rule, increasing mobile penetration by 10% yields an estimated 1.2% growth in GDP across the economy.
The proposed amendment to the Value Added Tax Bill runs the risk of crippling Kenya’s economic momentum by dealing a devastating blow to a nascent digital economy driven by young and highly skilled Kenyan information workers with the potential of creating many more break-thorough innovations and high paying IT jobs. Today, Kenyan developers are broadly recognized among some of the most innovative thinkers, tackling some of Africa’s biggest challenges through technology. We should empower and support these young people, not undermine their creativity with a tax.