Government plans to scrap VAT on cheap cellphone handsets

PARLIAMENT - Finance and Economic Planning Minister, James Musoni has said that recent claims by telecommunications companies that the increase of excise duty on airtime was unfair to them, were not  founded since they will not be affected in any way.

Musoni’s made the remarks while presenting a bill on consumption tax before the Chamber of Deputies on Monday.

"We had an agreement with all telecommunications companies in the country in 2006 to slowly increase the excise duty on airtime, this is what happened when we increased it from 3 to 5 percent; in the rest of East African Countries the exercise duty on airtime is actually above 10%,” Musoni said.

Before 2006, the exercise duty on airtime was standing at 10% but the government agreed with the telecommunications companies to cut it down to 3% and also put the customs duty on telephone handsets at 0% as a strategy to increase communication accessibility in the country.

Part of the agreement was to increase the airtime exercise duty by 1% every year and according to Musoni, the reason why the government increased it to five this year is because they have not increased in the previous two years.

"I want to make this clear, the telecommunications companies will not be affected in any way, it is the consumers who will be affected since the increment goes to the airtime that is used by the citizens, the telecoms will only collect this money on behalf of the government,” Musoni added.

He added that government was planning to generate about Rwf900m from the increment.

Members of Parliament agreed with the Minister and proposed that the government puts a cap of 5%. on exercise duty on airtime.

In his response, Musoni said that the government would look into their proposals.

Earlier, the telecommunication companies had claimed that the increment came as a surprise to them; a case in point is the Chief Executive Officer (CEO) MTN Rwanda, Khaled Mikkawi who said that he had not expected the increment in the middle of the financial year.

He added that the increment would not only have a negative impact on the company's revenues and targets, but it would also affect end users who will feel the pinch.

Rwandatel CEO Patrick Kariningufu, was not of the view saying that the development is a positive one as far as Rwandatel is concerned.

Meanwhile, latest development indicates that despite the scrap of the customs duty on telephone handset, the government is also planning to scrap the Value Added Tax (VAT).

"We are in talks with the traders of telephone handsets in the country to reduce the VAT; this is in line with easing accessibility to communication facilities, we intend to completely scrap the VAT on cheap phones,” Musoni said.

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