Budget: Telecoms react to increase on airtime tax

The country’s telecommunication companies have reacted differently to the 2009/10 budget increase of excise duty on airtime which rose from 3 to 5 percent.
L-R: MTN Rwanda CEO Khaled Mikkawi, CEO Rwandatel Patrick Kariningufu.
L-R: MTN Rwanda CEO Khaled Mikkawi, CEO Rwandatel Patrick Kariningufu.

The country’s telecommunication companies have reacted differently to the 2009/10 budget increase of excise duty on airtime which rose from 3 to 5 percent.

Khaled Mikkawi, the new MTN Rwanda Chief Executive Officer (CEO) said that he was surprised by the increment.

“All I can say is that we were all surprised, this is something we did not expect to happen at this time of the year. We are already in the middle of the year and we did not have this increment planned for in our annual plans,” Mikkawi said.

Mikkawi in a joint teleconference alongside MTN COO Andrew Rugege and Chief Finance Officer Richard Tushabe said that the tax increment is not well timed and will have a direct impact on the revenues of the company and its expansion plans.

“Honestly what all the networks in the country, MTN, Rwandatel and Tigo are thinking about is penetration, reaching out to people in all corners of the country, therefore what we expected are subsidies that would support us in expanding the subscriber base and network coverage but not tax increments” said Mikkawi.

During budget reading Musoni said the decision to increase tariff rates had long been agreed upon with telecom operators.

“It has been decided to increase the excise duty on airtime from 3% to 5% as initially agreed with the players in the sector to progressively adjust upwards the rate rather than a one-off shift in the tax rate,” Musoni said.

However, Mikkawi said the increment will not only have a negative impact on the company’s revenues and targets but also end users will also feel the pinch.

“We have not made an evaluation to find out how these extra costs will be covered but am sure end users will also be affected. The 2 percent increment means that there is a two percent increment in the expenditure and a 2 percent reduction in revenues. Generally there is a two percent effect,” Andrew Rugege, MTN COO explained.

Rugege further said that since 2007, when the government reduced excise tax on airtime from 10 percent to 3 percent, a positive experience has been recorded with a combined subscriber base growing from less than 0.5m to 1.7m in a short period, while the government collected twice, as much revenue as what was collected at 10% excise tax.

However Rwandatel CEO Patrick Kariningufu, differed with MTN chiefs. He said the development is a positive one as far as Rwandatel is concerned.

“One thing we have to understand is that this is not a bad move. We used to have an 18 percent tax on handsets but this has been slashed. This actually means that many people can now own handsets since they are cheap. It’s a win-win situation to me” Kariningufu summed up the development.

He said what is more important is that many people can now own handsets and therefore can afford airtime, the 2 percent increment is minimal and can be borne.

“What matters now is that people can now have handsets. You are well aware that even MTN doubled its subscriber base in almost one year after introducing low cost handsets in 2007” observed Kariningufu.

Rwanda currently has a subscriber base of 1.7m with 2 operators and targets 5m people by 2012. Another operator Tigo is set to join the market.

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