‘Wrong approach on prepaid telecoms VAT’

NAMIBIA could easily become one of the most expensive countries for telecommunication operations with the scrapping of the value added tax (VAT) exemption for prepaid telecommunication services.

According to the Namibian Economic Policy Research Unit (Nepru), the taxation move – to be implemented on Friday – will have a negative impact on economic growth and widen the digital gap within the country. Towards the end of last year, the Ministry of Finance announced that prepaid telecommunication cards for airtime sold would be subject to value-added tax at 15 per cent from February 1 2008.This means that consumers will only receive N$8,70 airtime for every N$10,00 paid when using the telephone card system or prepaid airtime system offered by the mobile phone network operators, such as MTC, Cell One and Telecom Namibia’s Switch.According to economist, Dr Christoph Stork, 92 per cent of local cellular phone users are on the prepaid services, and the implementation of the VAT would burden the public and would likely push the country further down the global economic competitiveness list.”Removing the VAT exemption from prepaid airtime would therefore increase the price that 92 per cent of mobile subscribers have to pay by up to 15 per cent.”The burden of that increase is likely to be borne by consumers, the poor and informal small businesses in particular, depending on how much of the increase the operators pass-through,” he said.Stork condemned the Government for scrapping the VAT exemption, instead of creating a progressive environment for the telecommunications sector to thrive in.”The Government should be concerned with cheaper and wider access to information and communication technologies, in particular for the poor rather than imposing more obstacles to universal access.”Stork gave the example of Uganda whose telecommunications industry – albeit it being a leading model in Africa – has had its sectoral growth stifled by increases in taxation.The researcher took issue with the fact that due to longtime monopolies, MTC (as the only mobile phone operator until last year) and Telecom, being the only fixed line operator, had become ‘too profitable’ and the Government was the main beneficiary of high revenues due to its being the major shareholder of these entities.Stork also expressed dismay at the the Government’s lackadaisical way of implementing policies things saying three steps needed to be urgently taken – a new telecommunications act, an independent regulator for the industry and clear policy guidelines for the regulator.”Instead of milking the sector through raising taxes, more effort needs to be undertaken to reduce costs of services.The introduction of competition to Namibia’s mobile sector has already led to a considerable price drop,” said Stork.Cell One and Telecom’s Switch service entered the local mobile phone scene last year.Research has shown that mobile phone access and usage contributes significantly to output growth in Africa, and Nepru says imposing taxes would slowdown economic growth induced by ICT uptake.In his research, Stork said using data gathered from small and medium sized enterprises from 14 African countries, it was proved that ICTs (information and communication technologies) access and usage aided SMEs improve their profitability and labour productivity.Towards the end of last year, the Ministry of Finance announced that prepaid telecommunication cards for airtime sold would be subject to value-added tax at 15 per cent from February 1 2008.This means that consumers will only receive N$8,70 airtime for every N$10,00 paid when using the telephone card system or prepaid airtime system offered by the mobile phone network operators, such as MTC, Cell One and Telecom Namibia’s Switch.According to economist, Dr Christoph Stork, 92 per cent of local cellular phone users are on the prepaid services, and the implementation of the VAT would burden the public and would likely push the country further down the global economic competitiveness list.”Removing the VAT exemption from prepaid airtime would therefore increase the price that 92 per cent of mobile subscribers have to pay by up to 15 per cent.”The burden of that increase is likely to be borne by consumers, the poor and informal small businesses in particular, depending on how much of the increase the operators pass-through,” he said. Stork condemned the Government for scrapping the VAT exemption, instead of creating a progressive environment for the telecommunications sector to thrive in.”The Government should be concerned with cheaper and wider access to information and communication technologies, in particular for the poor rather than imposing more obstacles to universal access.”Stork gave the example of Uganda whose telecommunications industry – albeit it being a leading model in Africa – has had its sectoral growth stifled by increases in taxation.The researcher took issue with the fact that due to longtime monopolies, MTC (as the only mobile phone operator until last year) and Telecom, being the only fixed line operator, had become ‘too profitable’ and the Government was the main beneficiary of high revenues due to its being the major shareholder of these entities.Stork also expressed dismay at the the Government’s lackadaisical way of implementing policies things saying three steps needed to be urgently taken – a new telecommunications act, an independent regulator for the industry and clear policy guidelines for the regulator.”Instead of milking the sector through raising taxes, more effort needs to be undertaken to reduce costs of services.The introduction of competition to Namibia’s mobile sector has already led to a considerable price drop,” said Stork.Cell One and Telecom’s Switch service entered the local mobile phone scene last year.Research has shown that mobile phone access and usage contributes significantly to output growth in Africa, and Nepru says imposing taxes would slowdown economic growth induced by ICT uptake.In his research, Stork said using data gathered from small and medium sized enterprises from 14 African countries, it was proved that ICTs (information and communication technologies) access and usage aided SMEs improve their profitability and labour productivity.