Business Daily (Nairobi)

10 December 2009

Kenya: Tax Cut to Bring Down Cost of Digital TV Receivers

The cost of set top boxes, the equipment that converts analogue television signals to digital ones, is expected to come down significantly early next year when Treasury removes key levies charged on the gadgets.

President Kibaki on Wednesday directed Treasury and the Information ministry to work out how to give consumers a tax relief to make the gadgets affordable to a majority of homes, when he launched the Kenya Broadcasting Corporation's digital transmission system.

The launch means that viewers with the set top boxes in Nairobi and its environs can receive much clearer signals from nine local broadcasters who have migrated to the digital transmission.

Information ministry officials said they were considering exempting the equipment from Value Added Tax (VAT) and import duty - a move that would cut their costs by half.

Dealers are currently selling high end market brands of the recommended MPEG4-enabled boxes for as much as Sh10,000 and the lower end versions at between Sh6,000 and Sh8,000.

Tax relief is expected to bring the costs within the Sh3,000 and Sh5,000 range that the government says is the right pricing for the Kenyan market.

The high cost of the boxes could slow down Kenya's migration to the digital broadcasting that the government says should be complete by 2012.

Nine television stations -- NTV, KTN, CNBC, K24, STV, KBC, EATN, Oxygen and Family -- have migrated to digital broadcasting, giving them the national footprint.

Dealers maintained that high sales volumes would bring down costs even without tax relief, setting the threshold at two million pieces.

"To mitigate the problem of high pricing of the equipment in the market, I am directing the Finance and Information ministries to find a tax relief that will make it more affordable so that wananchi can enjoy watching their favourite programmes on the new platform," the President said.

Kenya has slightly over five million analogue television sets that will require a similar number of set top boxes to receive digital signals.

The government has spent Sh200 million on the first phase of the migration and plans to spend another Sh3 billion on the project by 2015.

Information permanent secretary Bitange Ndemo said a tax relief proposal is already before Treasury and would be announced as soon as an agreement was reached.

The boxes attract 25 per cent import duty and a 16 per cent VAT levy.

"We are looking and zero rating the import duties and doing away with the Value added Tax but this will be confirmed after Treasury has looked at our proposal," said Dr Ndemo, adding that they were working with the University of Nairobi to produce the set top box locally - a move that should further bring down costs.

The government wants dealers to import set top boxes that are Digital Video Broadcasting Terrestrial (DVBT) and MPEG4 - enabled because Signet, the KBC subsidiary that is transmitting the digital signals has installed similar equipment.

Concern has been rising that some dealers might take advantage of consumer ignorance to sell them the MPEG2-enabled version of the boxes that will not be able to pick up digital signals transmitted by Signet.

Other than enabling television viewers to have clear sound and quality pictures, the migration will also make it possible for the Industry regulator the Communication Commission of Kenya to issue new broadcasters with frequencies.

The migration to digital platform will also give the viewers ability to access the internet using their television sets or record programmes or news items remotely and watch at a convenient time.

CCK chairman, Phillip Okundi, said the regulator plans to allocate 40 broadcasting frequencies by January next year.

But Ms Rose Kimotho of the Media Owners Association said the migration would unlock the frequency problem and called for fairness in the allocation of frequencies.

"We are asking that the allocation be done in a fair manner to ensure that all broadcasters on the waiting lists are considered," said Ms Kimotho.

Migration to digital TV is a global project that began at the 2006 telecommunications conference in Geneva that set June 2015 as the deadline by which all broadcasters are expected to have migrated.

Kenya has set its own deadline of 2012, leaving a three-year transition period.

CCK is expected to switch off all broadcasters who will not have migrated by the deadline.

The migration is also seen as an attempt to level the playing field by removing the high cost of equipment that has acted as an entry barrier to potential investors.

All broadcasters will be required to sign transmission contracts with Signet upon licensing by the CCK.

The establishment of a single signal distributor leaves broadcasters with the task of generating content, opening a new competition front.

All broadcasters are also expected to apply for new licences in January to meet the requirements of the Kenya Communication Amendment Act 2009.

A number of countries have started migrating despite numerous challenges, US is among them but they had to push their deadline ahead so as to come up with the incentives for both end users and broadcasters to ensure smooth migration.

South Africa is among the countries that have migrated from analogue to digital.

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