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VAT to slow down mobile penetration – Nokia

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Nokia East Africa General Manager Bruce Howes

The implementation of the 16 percent Value Added Tax will reduce the number of Kenyans acquiring mobile handsets. Nokia East Africa General Manager Bruce Howes said VAT on handsets will roll-back the gains made over the last four years since VAT on mobile devices was scrapped in 2009.

“Mobile penetration will most likely slow down in the coming year but as manufacturers we are more concerned about how the VAT will be implemented and what will happen to importers who deliberately avoid paying VAT,” said Howes.

Howes added the VAT will also increase the number of counterfeit devices in the country and an increase in handsets that escape custom officials’ scrutiny.

“Without effective border control, we will be competing with cheaper contraband and fake phones. We might have to scale down our operations in Kenya and reduce number of staff,” said Howes.

VAT was on mobile phones was scrapped in 2009 after industry players and Government officials led by former Communication PS Dr. Bitange Ndemo lobbied treasury with a view of boosting mobile penetration.

Mobile penetration in Kenya has jumped from 45 percent in 2009 to 70 percent by the end of 2012, according to GSMA but penetration remains relatively lower in the 18-25 years category and rural communities. Howes quoted a World Bank report that indicated the number of ‘grey’ and fake devices accounted for 50 percent of all handsets in 2009 but by end of 2012, 80 percent of devices are legit.

“Removal of VAT in 2009 almost doubled the number of devices that were sold that year,” added Gerard Brandjes – Vice President for Nokia South & East Africa.

“The effect on the Kenyan mobile ecosystem was almost instantaneous as we saw the growth of the mobile apps developer community and growth in related services and products.”

Howes compared the implementation of VAT in Tanzania and South Africa as examples of the tax implementation.

“The Tanzanian market is uncontrolled and very fragmented. It doesn’t make sense for us to have an office in Tanzania. We only have one member of staff there. In South Africa, the 14 percent VAT is implemented strictly and there is effective border control. Collection of the tax is easier because a majority of handset users buy from the four mobile operators,” explained Howes.

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Howes and Brandjes were speaking on the sidelines of the Nokia South East Africa showcase in Johannesburg where Nokia launched three new Lumia devices; the 41 mega pixel Lumia 1020, Lumia 625 and the Lumia 925.

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