Tax Increase while Promising Cheaper Smartphones – Why the Contradiction?

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Increased Tax on imported Smartphones in Kenya

In his remarks at the launch of ICT week, Cabinet Secretary Eliud Owalo promised that the government is working towards cheaper smartphones. However, there is a proposal to tax smartphones more in the Finance bill 2023.

Mr. Owalo also added that they are engaging ICT stakeholders to lower the data cost.

Indeed, these promises are aligned with the ICT Week theme, Digital Inclusion: Enhancing Access and Usage of ICTs for All.

ICT CS stated that about 1 million locally-assembled smartphones will be in the market within the next 2 months. The low-cost smartphones will retail for $40. At the current exchange rate, this is KSH 5,500.

Furthermore, the CS affirmed the government’s commitment to ICT as an avenue for job creation among the youth. eCommerce growth was singled out as a growth channel to create jobs.

For sure, cheaper smartphones and low-cost data are the right steps in enhancing digital inclusion.

Increasing Taxes is sending mixed signals

Perhaps, the ICT CS and the drafters of the Finance Bill 2023 need to have a sit-down and iron out their policy differences.

Currently, Kenya’s proposed Finance Bill 2023 includes new tariffs such as a 10% tax on imported phones and a 20% excise duty on mobile and internet data.

In addition, there is a proposed 12% on mobile money transfer fees.

Naturally, all these tax proposals seem to counter the move toward digital inclusion for all.

Furthermore, leading telco Safaricom noted that only 16% of its customers have 4 G-enabled phones.

The big reason behind all these numbers is affordability.

It is well worth noting that the increased tax proposal is on imported smartphones. Hence, whether locally manufactured low-cost smartphones will be subject to a different tax regime remains to be seen.

Nevertheless, Kenyans rely heavily on imported smartphones, and one doubts if local production will be able to meet demand in the short term.

Whether this is a ploy to encourage global smartphone manufacturers to set up production within the Kenyan borders remains to be seen.

Why the Sin Tax?

However, going further to propose new excise duty on data and mobile money transfers is an even bigger contradiction. Doing so while seeking to boost trust and grow the eCommerce sector is simply laughable.

What’s more, why the excise duty? Excise Duty is loosely referred to as Sin tax.

It is one of the oldest taxes levied worldwide on selected products and services that are considered harmful to society and individuals

While we acknowledge the risks that abound online, this is not a good move.

Why is a government that seeks to foster digital inclusion and enhance ICT service access turning on itself? 

Indeed, the contradictions persist with the introduction of the digital asset tax and a new tax on digital content creators

None of these new tax proposals seem to favour the growth of the ICT sector in the country.

There is a need for Kenya Kwanza policymakers to meet behind the tent and come out speaking in one voice.