The stage is set for the assent of three critical bills: the Tax Laws (Amendment) Bill 2024, the Tax Procedures (Amendment) Bill 2024, and the Business Laws (Amendment) Bill 2024. After the rescinding of the Finance Bill, 2024, these bills are projected to generate an additional Ksh 174.6 billion in tax revenue for the 2024/2025 financial year.  

This week’s developments have been mixed for telecommunications companies. The National Assembly’s Committee on Finance and National Planning, chaired by Molo Member of Parliament Kimani Kuria, has approved some of their proposals while rejecting others, with significant implications for the industry.

Excise duty on telephone and data bundles

Parliament retained excise duty on telephone and internet data services at 15%, rejecting a proposed increase to 20% in the Tax Laws (Amendment) Bill 2024. 

Implementing the proposal would have led to higher costs for essential communication services, disproportionately affecting low- and middle-income households. These households depend on affordable data for communication, education, and business. Additionally, it would have widened the digital divide and strained small and medium-sized enterprises (SMEs) that rely on affordable data for their operations.

During the public participation process, the committee concurred with these concerns, noting that maintaining the current rate aligns with the government’s Bottom-up Economic Transformation Agenda (BETA), particularly its pillar on promoting the digital superhighway.

However, there has been a growing trend of the government’s reliance on the telecommunications sector to fund national budgets. Although excise duty was traditionally considered a “sin tax” applied to products like alcohol, cigarettes, and luxury items such as jewellery, it has evolved into a broader revenue mobilisation tool.

Excise duty on airtime was first introduced in 2009 through the Finance Act, 2009, which amended the Customs and Excise Act (Cap 472). Initially, the duty was set at 10%. Over time, it evolved from a modest 10% levy on airtime to a broader tax covering both telephone and internet data services, with the Finance Act, 2018, maintaining the rate at 15%.

Since then, the government has been pushing to increase the rate by 5%  under various finance bills. This time, the Tax Laws (Amendment) Bill, 2024, attempted another increase to 20%. However, public and industry resistance has successfully tempered attempts to impose steeper rates, keeping the duty at  15%.

Investment allowance on spectrum licences

Parliament rejected the proposal to allow telecommunications companies to claim investment allowances for capital expenditure incurred on spectrum fees under the Tax Laws (Amendment) Bill, 2024, arguing it will lead to revenue loss.

This is despite the fact that the Income Tax Act currently gives enhanced investment allowances to the manufacturing, hospitality, and retail industries. Granted that  Kenya Vision 2030 identifies ICT as one of the enablers and foundations of economic growth, extending allowance to spectrum licenses, which generally tends to be heavy, will go a long way in growing this industry. Introducing a provision to allow at least 10% of the spectrum cost to qualify as an annual investment allowance would enable telecommunications companies to offer more affordable services, thereby spurring the growth of Kenya’s digital economy.

Other countries that recognise  ICT as a significant driver of economic growth provide spectrum licences. In the United Kingdom, for instance, telecommunications companies can claim capital allowances on spectrum fees, spreading the cost over time to reduce taxable profits. This offsets the significant upfront costs of acquiring spectrum licences and encourages investment in digital infrastructure.

Exemption from CBK regulation

Parliament agreed to exempt businesses that provide credit in support of their core operations from the Central Bank of Kenya’s (CBK) regulation. This means that such businesses will not be required to obtain a licence as a credit provider as the services they offer are incidental to their core business, as stipulated by the Business Laws (Amendment) Bill, 2024.

Telecommunications companies that offer mobile credit products would not be required to comply with the stringent licensing and regulatory requirements for credit providers. This would streamline operations and reduce administrative costs, enabling more customers in underserved or rural areas access to simplified credit solutions without the need for formal financial institutions.