This archive report was first published on 6 December 2019.
Mobile airtime has become a lucrative source of revenue for Kenya's government, with the Kenya Revenue Authority (KRA) collecting Sh26.3 billion in excise taxes from airtime last year. This represents a significant growth of 63% from the Sh16.1 billion collected in the previous year.
According to KRA data, excise taxes from airtime have overtaken those from wines and spirits, as well as cigarettes. While excise taxes on wines and spirits increased from Sh8.8 billion in 2017 to Sh11.7 billion last year, they still lag behind airtime. Even when combined with excise taxes from cigarettes, valued at Sh12.8 billion, they still cannot match the revenue generated from airtime.
The increased taxation of airtime has been attributed to the National Treasury's decision to slap mobile money transfer services, airtime, and Internet data with an excise duty of 15% in 2018. This move has made data, call, and SMS services more expensive for consumers.
Experts warn that the increasing tax burden on the sub-sector and consumers may discourage the use of mobile phone-based transactions, leading to a return to cash transactions and a decrease in tax revenue. However, so far, consumers have not found alternatives to airtime, and the increased taxation has not had a negative effect.
Between July 2016 and June last year, Kenyans spent a total of 75 billion minutes talking on their mobile phones, or 143,086 years. They sent a total of 55.2 billion SMSs during this period, meaning that the average Kenyan spent two days just talking on their mobile phone.
Mobile phone activities have increasingly been shifting from traditional telecommunication services of calling and SMS to data. The Finance Act, 2018 increased excise tax on airtime to 15% from 10%, making data, call, and SMS services more expensive for consumers.
Former Central Bank of Kenya Governor Njuguna Ndung'u warned that a higher tax rate on low-level retail electronic transactions may discourage the use of mobile phone-based transactions, leading to a return to cash transactions and a decrease in tax revenue.
