Uganda - reduced tax burden

Telcos React to Import Duty Removal on Equipment

While telecommunication companies in Uganda have welcomed the government's proposed removal of Value Added Tax on telecommunications equipment, they have vowed to continue pushing for the removal or reduction of excise tax on calling vouchers.

Uganda, Kenya and Tanzania have agreed to remove VAT on all imports of telecommunications equipment and computer printers, a proposal that will become effective on July 1 if passed.

"The immediate impact is it will bring down the cost of equipment, and we will pass that cost saving on to the customers,” said Afsat Communications General Manager Ken Mwai.

However, Hans Paulsen, chief commercial officer of Uganda Telecom, explained that the removal of import tax on equipment would not be reflected in calling tariffs.

"The import duty we have been paying on equipment, in terms of delivering calls, is very minimal, and it will not have any bearing on the guy on the street. But, of course, we welcome the decision to zero-rate the tax," Paulsen said.

Paulsen explained that a reduction in call tariffs would only be realized if excise on airtime and calling vouchers were reduced significantly. In Uganda, there is a 12 percent excise tax levied on calling vouchers, which affects calling tariffs.

"I would have been more excited if excise had been reduced, but we will continue pushing for this position," Paulsen said.

Erik van Veen, the chief commercial officer of MTN Uganda, said the exemption makes a difference, but he agreed that it will have a minimal impact.

"The impact on the big players will not be significant," van Veen said. "Where it will have an impact is on the small operators in the sector who have cash flow problems."

Members of the telecommunications sector in Uganda, Kenya and Tanzania have been lobbying governments in the three countries to lower the excise duty levied on mobile-phone airtime. In Uganda, discussions between the Ministry of Finance, the Uganda Revenue Authority (URA) and the Ministry of ICT are ongoing, and companies hope the removal of import tax on equipment is a first step to reducing excise taxes.

Mobile-telephone users in Uganda, Kenya and Tanzania pay taxes of 25 percent to 30 percent on mobile-phone services, compared with an average of 17 percent across Africa, according to a 2006 study by Deloitte for the GSM Association, the global trade association for mobile-phone operators