Research conducted by Deloitte has demonstrated that sales of mobile phones saw a significant boost in Kenya after the African country’s government scrapped value added tax on handsets in 2009. The findings, which were commissioned by the GSMA, show a 200% leap in mobile phone sales following the removal of the 16% VAT levy on handsets.
The upswing in sales has boosted mobile penetration from 50% to 70%, although operators are now taxed 33% more than they were prior to the removal of VAT on mobiles. In 2011, Kenya’s mobile operators will represent around 8% of the country’s GDP, with the sector providing around KES400 billion to the economy.
Deloitte Telecoms partner Chris Williams said “The report’s findings indicate that consumers, particularly in developing countries, are price sensitive and that tax cuts could boost consumption of mobile services.”
Gabriel Solomon, GSMA head of regulatory policy, noted “Kenya has shown great foresight in abolishing mobile handset taxes making mobile services more affordable for the wider population, with the growth in uptake contributing significantly to the Kenyan economy.”
However, airtime is still subject to VAT in Kenya, and this coupled with a 10% excise duty means that mobile phones ownership essentially carries a tax of 17%, slightly higher than the regional average.
