Prime Minister Raila Odinga
QUESTION:
The Member for Yatta (Mr. Charles Kilonzo) to ask the Prime Minister:(a) Could the Prime Minister indicate the amount of taxes paid by the four major mobile companies/operators over the last five years and state how much money in taxes the Government is losing due to the current "price wars"?
(b) What action is the Government taking to protect the 750,000 local shareholders and erosion of the value of Government shareholding in Safaricom Limited from the imminent decline due to the "price wars"?
(c) What measures is the Government taking to ensure Safaricom does not outsource such services as customer care, IT and network management, which will result in over 1500 Kenyans being retrenched?
ANSWER:
Mr. Speaker Sir, I beg to reply: -(a) Consumers pay VAT and Excise Tax on Airtime. Telephone Companies pay Corporation Tax. The Mobile Telephone Sector in Kenya has generated tax revenues of Kshs.99.2 Billion for the period between FY2005/2006 and FY 2009/2010. Safaricom accounts for 85.8%, Bharti Airtel for 6.8%, Telkom Kenya for 7.2% and YU for 0.1% of the total revenues.
The amounts of VAT and Excise Tax on Airtime payable by each mobile telephone company is dependent on their subscriber base and degree of usage. The amount of Corporation Tax payable is dependent on profitability. A combination of high debt financing with thin capitalization and high capital deductions have yielded losses and low Corporation Tax.
Subscribers as at December 2010, were spread across networks as follows:
Safaricom 15,793,176
Bharti Airtel 1,902,760
Essar (YU) 1,364,589
Telkom (GSM) 832,785
The "tariff wars" amongst the providers is therefore to defend territory on the one hand for Safaricom and to expand territory on the other hand for its competitors.
According to Kenya Revenue Authority, VAT and Excise Tax on Airtime collection declined by 37% and 22%, respectively in the Fourth Quarter of FY 2010 as compared to the Third Quarter of the same year. This trend could translate into a reduction of Kshs.5 Billion in tax revenues by the end of FY 2010/2011. But recent trends indicate a growth of 2.8% of Excise Tax on Airtime.
However, mobile telephone usage has increased by 243%. There is more usage due to increased affordability. The penetration of mobile telephony has also increased tremendously. The lower tariffs have reduced the cost of doing business. The World Bank estimates that 10% increase in penetration of mobile telephony corresponds to 0.6% growth in GDP.
The reduced tariffs are encouraging network migration which is a key factor in establishing a competitive mobile telephony market.
(b) The "tariff wars" are a function of a free and competitive market. The shareholder value in Safaricom is a function of efficiency, innovation, visionary leadership and high quality customer service. The Government cannot interfere in these areas.
(c) Business Process Outsourcing (BPO) is a commercial matter for Safaricom to decide. The Government, under Vision 2030 intends to make Kenya an attractive and competitive destination for BPO. BPO does not always result in job losses as it may include the transfer of both the service and workforce to third parties.
The Government has established an Inter-Ministerial Committee chaired by the Ministry of Finance to deal with this matter. The Committee will analyze the impact of lower tariffs on the economy, cost of doing business, attractiveness to BPO, increased penetration and affordability, etc. In order to safeguard revenue collection, the Government is considering adopting tax measures not dependent on mobile telephone tariffs as these are subject to unilateral changes by telephone operators
Rt. Hon. Raila A. Odinga, EGH, MP
PRIME MINISTERWednesday, February 16, 2011
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