Uganda has highest phone tariffs in East Africa

According to the report, Uganda's telecommunications sector tax package in the year 2006/2007 included value added tax on mobile and fixed line, airtime at 18%, excise duty on the mobile phone services at 12% bringing the total tax to 30% while excise duty on fixed line services is at 5%.

"The 30% tax on services is certainly very high by any standard and this ranks Uganda as the country with the second highest taxes on mobile phone usage internationally, placing it only behind Turkey," says the report.

Other taxes include the 30% corporation tax, 10% import duty on landline transmission equipment and 10% import duty on fixed line sets.

The 2007 report was released at a half-day workshop organised by the Uganda Communications Commission in Kampala recently and said that as a result Uganda has only 6% penetration levels, which are the lowest in the region, while Kenya has a penetration rate of 15% and Tanzania 11%.

The report also points out that Uganda, with a population of about 30 million people, has a mobile subscriber base of only 3 million people while Kenya and Tanzania have 37 million people and 5.7/6.5 million and 39 million people and 7 million subscribers respectively.

The current tax rate on mobile phone services in Uganda is 30% whereas it is 25% and 26% in Kenya and Tanzania respectively, the survey says.

"On average the cost of making a call is higher in Uganda than in any other East African country and this explains the low penetration levels," says the report. The report therefore indicates that Uganda has the highest local tariffs on fixed lines since the year 2000.

The report also shows that high taxes have led to increases in revenues from airtime sales that have systematically improved from $5,198,863 (UGX9.15 billion) in 2001/2002 to $23 million (UGX42bn) in 2006/2007. This is an increase from 7% in the year 2000 on mobile phone airtime usage to 12% in 2006/07, and from 0% on landline usage in 2001/2002 to 5% in 2006/2007.

"As a result the current sector tax system is unfair as it increases the tax burden to the consumers leading to lower levels of penetration in Uganda compared to other countries in the region," the report reveals.

The report recommends that a 1% per year reduction in taxes on telephone airtime over the period from 2007-2010 to reverse the current declining trend of demand for mobile telecommunications services.

"Such a policy would result into a 30% increase in minutes of use as opposed to a 9% reduction over the same period," it states.

Elimination of excise duty on telephone airtime would result in a 56% increase in demand over the same period while a 1% per year reduction in taxes on fixed line telephony would result in a 4.24% demand as opposed to the 38.4% decline over the 2007-2010 under the current tax policy.

The report recommends that a review of the current tax policy be introduced by reducing tax on telephone airtime between the years 2007 and 2010 by 1%. That would lead to increased penetration levels of 17.3% as compared to the current 6.7%.

The report also points out that owing to limited competition in the sector increases in taxes are passed on to consumers in the form of higher tariffs. This has over time resulted in a slowing down in uptake of services and sector investment. This in turn reduces tax revenue to the government treasury as well as slowing down economic growth.

In order to revitalize the telecommunications sector and enhance its growth, a tax reduction of some sort will have to be considered otherwise telecommunications will remain the luxury of the rich only.

Published courtesy of