Reference is made to an article that appeared in The New Times Saturday 13th June 2009 authored by Edmund Kagire in which the CEO’s of MTN and Rwandatel reacted to the 2009/10 budget excise duty 2% increase on airtime.
According to the article Rwandatel CEO Patrick Kariningufu said in reference to the increase that “one thing we have to understand is that this is not a bad move…’
NOT A BAD MOVE! Unbelievable! How can a CEO of any company welcome a tax that will impact on its revenues and possible increase the cost of service to its consumers?
I think Kariningufu either does not understand the impact of the tax on telecommunication or he was being political and avoiding a head on collision with the Ministry of Finance over the increased tax.
If one does the math on this increment the 2% announced it is in real terms a 60%+ increment. For the record this is the tax impact on a 5,000 airtime voucher:
1. Total VAT @ 18% paid on 5000 airtime = 762 Francs
2. Total Excise Tax paid @ 3% = 127 Francs
3. New Excise Tax Paid @ 5% = 212 Francs
4. Incremental costs (212 - 127)= 85 Francs
5. Real Terms Incremental= 67%
If one were to take the this analysis to the next level and demonstrate the impact by analysing what MTN paid in excise duty to Government in May 2009 at the 3% rate They paid RWF 151,787,138.
Now let us assume they did the same level of sales in June they would now have to pay government RWF 252,978,563 which translates as an increase of RWF 101,191,425 extrapolated across a year would be 1.214 billion or US$2 million.
And Kariningufu says ‘…the 2 percent increment is minimal and can be borne...!’ I am further disturbed that he tried to justify his argument saying that by government removing 18% on hand sets this was a fair trade-off.
Once again he missed the bus. The Tax on handsets was an issue highlighted at the last private sector meeting held with H.E. President Paul Kagame who directed (at that meeting) the tax authority to remove the tax since it was not right that handsets (save the up - market types) are not exempt under the ICT Development strategy.
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