As the minister for Finance and Economic Affairs Mustafa Mkulo tables the 2010/11 budget today in Dodoma about 20 million Tanzanians who use mobile phone hope the government will not increase the excise duty on airtime.
Stakeholders say high tax rates hamper the operators' efforts to expand penetration to the under-served areas.
The last time the government made changes was in the 2007/08 budget when it increased the duty 10 per cent from the seven per cent of the 2006/07.
However in 2009/10 budget the government revised the Excise (Tariff and Management) Act by charging the excise duty on airtime at the point of sale of scratch cards (credit vouchers). Formerly the duty was charged as a percentage of turnover.
Stakeholders also hope that tax on mobile phone handsets would be reviewed downwards. The current 10 per cent excise duty on imported mobile phone handsets make the gadgets unaffordable to many among the unsubscribed population therefore impeding operators' profit margins and reducing connectivity.
"The two big proposals that players have in the 2011/12 budget are that, the government should not increase the 10 per cent excise duty and that all mobile phones handsets have to be zero-rated like in the neighbouring countries," Joseph Lyimo, a tax specialist with PricewaterhouseCoopers told The Citizen this week in a telephone interview.
However, during the financial 2001/02, the government had removed VAT on computers, printers and their accessories in order to hasten the pace of Tanzania entering the 21st century in the era of globalization, communication and growing dependence on the internet.
"Unfortunately, the government did not remove VAT on cell phones although they are important in that aspect...we are therefore appealing that all cell phones be zero-rated," said the mobile operators in a compiled tax reform proposals for 2011/12 budget formulation as prepared by the Tanzania Private Sector Foundation (TPSF).
Tanzania has maintained its 18 per cent VAT on mobile phones despite requests from handset manufacturers to waive the levy.
"We have been negotiating with the government over the issue and we will keep on since lobbying usually takes long to yield intended results," Nokia East and Southern Africa communications manager, Dorothy Ooko said recently in Dar es Salaam.
She said Tanzania should emulate other East African Community countries such as Kenya and Rwanda who have scrapped the VAT on mobile phones.Ms Ooko said Nokia C3 that has just been launched in the EAC market will be sold at Sh225, 000 in Tanzania, which is way more expensive than its price in Kenya and Rwanda due to the tax.
"The handset is sold for about Sh180,000 in Kenya and in Rwanda....should Tanzania waive VAT on mobile handsets, the price will come down to match that of Kenya and Rwanda," she said.
Kenya scrapped VAT on mobile phones in its 2009/2010 financial year before Rwanda followed suit.
While the government needs revenues, she said, it was also proper to understand the impact of nurturing high mobile phone penetration rates to the country's economic growth endeavours.Analysts have it that increasing mobile phone penetration rate by 10 per cent aids a country gross domestic product to grow by 1.2 per cent.
Even as the telecommunication players seek for tax reduction from the government, the Treasury is optimistic that the industry has all potentials to be the engine of this year's national economic growth.Statistics from the Treasury show that telecommunications was the fastest growing sector after growing by 21.9 per cent in 2009, followed by the financial intermediary and electricity and gas sectors that grew by nine and 8.4 per cent respectively.
Telecommunications was one of the four sectors that recorded positive growth in 2009 out of the 19 sectors.
Telecommunications is also now a multibillion-shilling enterprise led by mobile telephony, which currently generates over Sh2 trillion in revenues annually.
Its growth is reflected in the expansion of the mobile phone subscriber base from 200,000 in the year 2000 to over 20 million customers in 2010.Although, the Tanzania Communication Regulatory Authority (TCRA) is of the view that its engagement in consultations with players to bring the tariffs down have succeeded, experts say multiple taxes and charges make airtime in Tanzania expensive.
"All the above mentioned challenges discourages operators to make new investment, while knowing the numerous taxes that they need to pay," said Mr Lyimo.
He notes that tax costs that the industry is not currently exempted from play an important role in pushing the pricing of the telecommunication services higher.
In 2002, there was an introduction of excise duty at five per cent on mobile phone airtime. The rate was increased to seven per cent in 2006 and in 2008 it shot to 10 per cent, which has remained in place to date.
Moreover, VAT is chargeable at 18 per cent on an excise duty inclusive amount, resulting into an effective usage tax of 29.8 per cent, he said.
In addition, a further 1.1 per cent is charged on the remaining balance by way of the 0.8 per cent TCRA royalty and the 0.3 per cent service levy payable to the local government.
Therefore, for every Sh1,000 voucher, Sh303.8 is payable to the government, leaving the operator with Sh696 out of which to pay for operating costs.
Analysts say the telecommunication sector has transformed from a "luxury" industry to an important vehicle for economic growth and thus needs incentives, citing examples of Rwanda where ICT had contributed a lot in economic gains.The national ICT broadband backbone was recently switched on in 19 regions toward completion of its second phase of construction.
Stakeholders applaud the move as it is expected to result into increased efficiency and reduced Internet charges in the country."With such a reliable connectivity, everyone should think of how they can tap into the ICT potentials in their areas of interest, whether in tourism, education, or in health," said Dr Zaipuna Yonah, the director for Information and Communication Technology at the ministry of Communications, Science and Technology, when speaking to The Citizen recently.
However, players insist that the completion of the national ICT broadband backbone, which has cut the capacity of transportation costs by nearly 90 per cent, should be supported by other mechanisms to reduce costs for internet and data as well.
Ironically, Dr Yonah hopes that with the completion of the national broadband backbone construction and with the availability of two submarine cables, the country would have a reason to boast as the ICT hub in the region.
"We have a well positioned country, geographically, to supply the ICT link ups to the landlocked neighbouring countries," he says.
He says countries such as Zambia, Rwanda, and Malawi are already using the newly built national ICT backbone to get international links via the submarine cables that landed at the Indian Ocean shores recently.
Some analysts are optimistic that the fibre optic cable and the completion of the national ICT infrastructure to the last miles would ultimately lead to further reduction of communication tariffs in the country.