Even though Uganda has a low mobile penetration (approx. 50 per cent), the telecom industry is one of Uganda’s most robust industries. Indigenous companies, foreign investors, and global players have all made significant investment into this industry.
We see major developments and competition dynamics such as the bowing out of Orange Telecom, Airtel’s acquisition of Warid, several operators introducing high-value services, including 4G LTE, life insurance services, hire purchasing of solar equipment, and other financial services.
With the more sophisticated handsets, we are also seeing dynamic mobile content such as DStv /GoTV for mobile, mobile banking and payments.
Even governments are waking up to the opportunity to regulate, auction spectrum and licences. Tax authorities world over are not to be left behind. It is not surprising that the telecommunication industry is one of the most heavily taxed industries.
In Uganda, apart from the 30 per cent income tax, the industry is heavily laden with indirect taxes - VAT at 18 per cent, Excise Duty on airtime for cellular and land lines /public phones at 12 per cent and 5 per cent, respectively.
Value added services like downloading ringtones, multimedia messaging service, and SMS at 20 per cent excise, incoming international calls are also taxed at $9 cents per minute excise and international money transfers at 10 per cent excise.
In addition, there is a two per cent charge on turnover collected by Uganda Telecommunication Commission, which is trickled down to the consumer or shouldered partly by the operators.
There are challenges to collecting the already legislated taxes. For example, because airtime is not defined in any legislation there is ambiguity on whether it is a service or a good, and also who is obliged to pay the due taxes.
In a recent case of Celtel vs. URA, airtime was ruled to be a service.
But then who is the service provider and who is required to account for all the above taxes? Is it the operator or agent/dealer, or the lady across the street selling scratch cards? Court battles between the URA and the various players in this industry are ongoing.
Another example is Focus Telecom Ltd vs. URA. TAT ruled in favour of Focus at the ratio of 2:1 that commission by the agents should not be subject to VAT since this is a supply by the principal. URA appealed this decision at high court and the case continues.
Two models of VAT accounting have emerged; and though one is currently accepted, this could change depending on the case outcome.
The mechanism for providing the value added services (VAS) at times has an element of airtime which is already subject to 12 per cent excise duty. Is the 20 per cent rate for VAS double taxation?
The $9 Cents for incoming international calls has issues of determining where the calls terminate; especially in the era of Sim boxing.
Sim boxing is a set up in which some fraudsters connive with cohorts abroad to route international calls through a system called voice over internet protocol (VOIP) and terminate those calls through local phone numbers to make it appear as if the call is a local call.
The telecoms and the government have a challenge on this. There is definitely a loss of revenue.
There is lack of clarity if the 10 per cent Excise Duty on money transfers also includes institutions like Western Union, MoneyGram and Forex bureaus involved in money transfer. Money transfer and to whom it is applicable to has to be defined further.
Recent advances in smart phone technology and the emergence of newer and cheaper ways of providing internet access to those without access to computers will continue to fuel growth in this sector. The telecom industry may be an important engine of growth in Uganda, the benefits of which a high tax bill might impede.
It is therefore time for tax authorities, regulatory authorities, and operators to work together for this industry to yield the maximum benefits as a source of growth.
Mr Martin Makumbi is the manager of tax at Deliotte&Touche, Uganda.