Kenya Exempts Mobile Telephones From VAT

by Amanda Banks, Tax-News.com, London

17 June 2009

Kenya’s Finance Minister Uhuru Kenyatta has announced that purchases on new mobile phones will now be exempt from value-added tax. Until recently phones were subject to a 16% rate of value-added tax, with an additional 10% duty on imported phones. Kenyatta underscored that the measures would mitigate the expansion of an already substantial grey market as well as providing Kenyans with access to technological advances.

Kenyatta said the development would be a win-win situation for mobile operators, consumers and government coffers. The Finance Minister explained that the measure would bring about an increase in market penetration of phones, meaning that lower value-added tax receipts would be offset, if not over-compensated, by a greater tax take through the government’s remaining 10% taxes on airtime vouchers and phone import duties.

Zain Kenya, a leading telephony provider, has welcomed the scrapping of VAT on telephone handsets. In a statement Managing Director Rene Meza said the 26% tax (VAT and Excise) levied on airtime was a major impediment to efforts to increase the uptake of telephony services especially in the rural areas. A study by Deloittes, ‘Taxation and the Growth of Mobile Services in East Africa’, conducted earlier this year, indicated Kenya ranked fourth highest in Africa in terms of taxes levied on mobile phone services. Meza however did warn that with the remaining levies still in force, the effect on market penetration could be nominal, urging further cuts and subsidies to speed the adoption of high-technology telecommunication devices in Kenya.

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