Less airtime for your dollar from February 1

In this series of articles, Cameron Kotze – the Tax Partner at Ernst and Young – discusses some topical tax issues for our readers.

A NOTICE was published in the press during the holidays by the Ministry of Finance to advise that prepaid telecommunication cards for airtime sold by any person that is registered for value-added tax will be subject to value-added tax at 15 per cent from February 1 2008. From February 1 2008 you will only receive N$8,70 airtime for every N$10,00 you pay when you use your telephone if you use the telephone card system or prepaid airtime system offered by the mobile phone network operators.Up to now the sale of telephone cards by Telecom Namibia and prepaid airtime by the mobile phone network operator attracted value-added tax at zero per cent in terms of a practice allowed by the Receiver of Revenue.This practice was allowed on the basis that the supply of telecommunication services to a residential account is zero rated in terms of the Value-added Tax Act and most users of telephone cards and prepaid airtime were individuals who are not registered for value-added tax and not businesses that generally are registered for the tax.Whilst it may be so that some abuse of the practice to zero rate telephone cards and prepaid airtime could have taken place to date, it is also fair to say that a value-added tax registered person would be claiming back the value-added tax paid in respect of telephone cards and prepaid airtime in any event.The Receiver of Revenue stands to gain the value-added tax that are paid by non-registered persons who up to now have not had to bear the cost of the tax on calls made because they are not in a position to claim value-added tax back from the Receiver of Revenue once it charged from February 1 2008.If you have a fixed line to your house or have a contract with one of the mobile phone network operators, the telecommunication service supplied remains zero rated on the basis that the Value-added Tax Act allows the zero rating of a telecommunication service supplied to a residential account.The change in practice to tax telephone cards and prepaid airtime at the standard rate does appear very punitive if you consider that someone who has a fixed phone line at his or her residence and pays the telephone account on a monthly basis pays no tax on the phone calls compared to some who uses the telephone card system at his or her house, who will have to pay tax of 15 per cent on the value of phone calls.The same applies to an individual who is not registered for value-added tax and uses the prepaid basis as opposed to the contract basis to make phone calls.There is no apparent logic behind the change in practice if you consider the examples in the previous paragraph – that is just how it is and that is how it is going to be unless the Minister of Finance comes to our rescue.One of the canons of taxation – neutrality – is seriously violated by this change in practice, but I guess we have to like it or lump it and move on.Should readers have queries, they are invited to send them to cameron.kotze@za.ey.comFrom February 1 2008 you will only receive N$8,70 airtime for every N$10,00 you pay when you use your telephone if you use the telephone card system or prepaid airtime system offered by the mobile phone network operators.Up to now the sale of telephone cards by Telecom Namibia and prepaid airtime by the mobile phone network operator attracted value-added tax at zero per cent in terms of a practice allowed by the Receiver of Revenue.This practice was allowed on the basis that the supply of telecommunication services to a residential account is zero rated in terms of the Value-added Tax Act and most users of telephone cards and prepaid airtime were individuals who are not registered for value-added tax and not businesses that generally are registered for the tax.Whilst it may be so that some abuse of the practice to zero rate telephone cards and prepaid airtime could have taken place to date, it is also fair to say that a value-added tax registered person would be claiming back the value-added tax paid in respect of telephone cards and prepaid airtime in any event. The Receiver of Revenue stands to gain the value-added tax that are paid by non-registered persons who up to now have not had to bear the cost of the tax on calls made because they are not in a position to claim value-added tax back from the Receiver of Revenue once it charged from February 1 2008.If you have a fixed line to your house or have a contract with one of the mobile phone network operators, the telecommunication service supplied remains zero rated on the basis that the Value-added Tax Act allows the zero rating of a telecommunication service supplied to a residential account.The change in practice to tax telephone cards and prepaid airtime at the standard rate does appear very punitive if you consider that someone who has a fixed phone line at his or her residence and pays the telephone account on a monthly basis pays no tax on the phone calls compared to some who uses the telephone card system at his or her house, who will have to pay tax of 15 per cent on the value of phone calls.The same applies to an individual who is not registered for value-added tax and uses the prepaid basis as opposed to the contract basis to make phone calls.There is no apparent logic behind the change in practice if you consider the examples in the previous paragraph – that is just how it is and that is how it is going to be unless the Minister of Finance comes to our rescue. One of the canons of taxation – neutrality – is seriously violated by this change in practice, but I guess we have to like it or lump it and move on.Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com