When the Minister of Finance and Economic Planning presented the budget, last week, changes in the taxation system were proposed in line with international best practices.

The new budget saw excise duty on airtime increased while value added tax (VAT) on handsets was removed.
The minister said that in the financial year 2010/11 duty rate on mobile service airtime would increase from 5 to 8 percent.

The excise duty on airtime in Rwanda remains the lowest in the region since in Kenya and Tanzania it is registered at 10 percent, while in Uganda it is 12 percent.

The minister took note of this and suggested that the rate will continue to be raised progressively to align the taxes within the EAC region.

However, the Minister explained that the increase in excise duty on airtime is to compensate for the proposed removal of VAT on handsets, a move that will make the handsets more affordable.

VAT is similar to a sales tax estimated on market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer.

The mobile handset suppliers may find it difficult to claim all their input on VAT and as a result, they will attempt to pass on this additional cost to the next customers.

Whichever way you look at it, mobile handsets should now be cheaper come the new financial year.

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