Govt cuts airtime tax by 70 per cent

Excise duty on airtime has been reduced by 70 per cent in order to increase mobile telephony user base in the country.

Excise duty on airtime has been reduced by 70 per cent in order to increase mobile telephony user base in the country.

Finance minister James Musoni who announced the reduction is optimistic—the move would attract more investors in the telecom sector and spur faster economic development in the country.

The move comes at heels studies show that effective usage of ICT locally could hasten economic growth.

But it is not the first time the government is giving telecom companies incentives.

In the 2007 Budget, taxes on mobile phone handsets and accessories were scrapped.

This was to allow more Rwandans afford handsets and ease communication countrywide.

In this year’s budget, excise duty that has been eating into the telecom companies’ profits and capital has been reduced to the lowest figure in the East African region. 

“At the start of 2007 we used to charge 10 per cent excise duty on airtime but this has been reduced to 3 percent,” Musoni revealed.

This leaves Kenya, Uganda and Tanzania still charging between 9-10 per cent excise duties on airtime.

Experts argue that the governments are taking advantage of the ‘price inelasticity’ of airtime (demand remains the same for a range of prices) to over charge the telecom companies and consumers.

0MTN has promised to spend $60 million on setting-up base stations in their countrywide rollout plan.

While Lap Green, the Libyan firm that recently bought, Rwandatel plans to invest $87 million before the end of next year—and $317 million over a period of 15 years.

Lap Green announced that their plan is to have more 2 million Rwandans accessing phone and internet services.

Telecom operators in the country argue that the high taxes are partly to blame for the low penetration.

And the taxes are also partly responsible for the high call tariffs.

But Diogene Mudenge, the vice chairman Rwanda Utilities Regulatory Agency is optimistic the tariffs will reduce when government licences a third telecom company to invest in the country.

The telecom sector is currently dominated by what many describe as near ‘monopolies’—MTN dominating in provision of mobile phone services while Terracom/Rwandatel provides landlines.

With only two players, consumers complain that they have no alternative company to seek cheaper telecom services.

Eng. Albert Butare, the Communication and Energy state minister however says a third operator will start operation early next year.


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