Nokia campaigns for tax reductions

August 26, 2008
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, NAIROBI, July 28 – Mobile handset manufacturer Nokia is lobbying the government to reduce taxes on the handsets.

Currently the gadgets attract a 16 percent VAT and an extra 3 percent customs duty putting the tax on mobile phones at 19 percent.
 
Speaking to Capital Business, Nokia General Manager for East Africa Gerard Brandjes said there was need for mobile phones to be zero rated as had been done for computers.

He argued that mobile phones were fast becoming the common choice for internet browsing.

“We are not seeking for precedence,” Brandjes emphasized. “This is something that has been done for computers and if the same is done on mobile phones it could have a profound effect on development”.

The ministry of Information and Communication has been working on an ambitious strategy that would, among other things, involve laying a fibre optic cable across the country as well as the development of digital villages in the rural areas.

This should bridge the digital divide between rural and urban dwellers and further facilitate the implementation of a proper E- government strategy in the country. 

A proposal document prepared by Nokia shows that internet penetration in Kenya is around 33.6 percent. The Digital Village Networks are targeting at least 12 million people in the rural and peri-urban areas.

Brandjes said studies conducted in the past over the issue have shown a direct relation between economic growth and increased access to mobile phones.

“There is a particular study that was done in the UK which looked at emerging economies and the relationship between GDP growth as well as mobile penetration, and it was found in the study that a 10 percent increase in mobile penetration had a 0.6 impact on GDP growth in a particular economy,” he explained.

“According to a study done by Deloitte (GSMA, 2006-2007), removal of all mobile specific taxes will also have a significant effect on handset sales and will likely lead to double the percentage impact on penetration,” says the Nokia proposal.

“The GSMA report by Deloitte also demonstrates that reducing VAT on mobile use and handset sales leads to a limited reduction in Government revenue vis-à-vis the base case forecast”.

Brandjes explained that Nokia had a strategy for lobbying the tax reductions. “We are starting lobbying effectively and it will be our aspiration that by the time the next budget is announced there will be a move in the right direction,” he said

The Nokia boss has already sought audience with Deputy Prime minister and Minister for Trade Uhuru Kenyatta and Permanent Secretary in the Ministry of Information and Communication Bitange Ndemo, who have promised to support the initiative.

“The two have shown an appreciation for what we are saying but the challenge will be how best to take this process forward,” Brandjes said.

Another side to this argument, Brandjes indicated, is crime where phones that were meant for another market are dumped in Kenya. Such handsets are not covered by warranty, making consumers vulnerable to fraud.

“The Ghanaian government-in its 2008 Budget-waived duties and taxes on mobile phones due to the realisation that many people were smuggling mobile phones into the country,” he explained.

“Thus the zero rating on mobile phones would not only enable more people to buy mobile phones but it would also deter those who import these phones into the country without paying duties”.

So far only Nokia is involved in the initiative. However Brandjes insists that the company intends to involve other phone manufacturers as the process picks momentum.

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