25% import duty on airtime cards hurts telecom business

A subscriber displays different air time cards. Telecom operators have been importing these materials from Kenya at zero taxes until February this year. PHOTO BY FAISWAL KASIRYE

What you need to know:

Option. Some players are now considering importing such products from China, India and Dubai, arguing that it would be cheaper than importing from Kenya.

Players in the telecommunication industry have accused Uganda Revenue Authority for violating the East African common market protocol by imposing import duty on airtime scratch cards imported from Kenya.

About four Ugandan telecommunication companies import airtime cards from Kenyan companies; Ellams Products and Sintel Security Print Solutions Limited. Sources in the sector who asked not to be named due to the sensitivity of the matter, said they had opted to import the cards and other sensitive items from Kenya, anticipating to enjoy tax exemption since Kenya is a partner state.

However, sources in telecommunication industry allege that URA started imposing the 25 per cent full duty on their imports since February this year; a move they said is frustrating their business.

Senior officials in the sector said some players are now considering importing such products from China, India and Dubai, arguing that it would be cheaper and hassle-free than importing from Kenya where they still have to pay taxes.

“The cost of doing business in East Africa is still high because of infrastructural barriers. We shall resort to importing from outside the region, though it will be to the detriment of the economies,” a source said.

Telecoms have been importing these materials from Kenya at zero taxes until February this year. Telecom officials say that the charges are met by the final consumer in form of high call charges.

Mr Stephen Magera, the URA assistant commissioner in charge of trade, however, said the taxation of airtime cards is a resolution of the August 2012 meeting of the sectoral council of Ministers which applied full taxes on finished products manufactured by companies that are exempt from import duty on raw materials.

Schemes
He reported that partner states have country-specific duty remission schemes that allow some of their industries to import certain raw materials from outside partner states without paying certain levies, as a way of promoting local industries.

Mr Magera said country-specific schemes were not seen as a problem until the Tanzanian authorities applied full taxes on Mukwano Group of Companies’ exports, saying it benefits from a duty remission scheme.

“We don’t doubt that scratch cards are made in Kenya and whether they qualify for preferential treatment or not. The argument is that the cards were manufactured or transformed in Kenya but their inputs never paid taxes when they were entering Kenya, so they now have to pay full taxes when exported to partner states,” he said in an interview.
He said that over the years, country-specific schemes were not regulated but it was done in order to harmonise and offer a competitive platform across the region.

According to the EAC Gazette published on April 24, 2012, Ellams Products is among the approved Kenya manufacturers of goods for export to be imported at zero duty rate in 12 months.

The firm was cleared to import 500,000 Kilogrammes duplex board duty free to manufacture airtime cards. Although telecoms said they did not receive any communication regarding the new regulation that took effect on February 15 this year, URA said information about the matter was disseminated through representatives of the Private Sector Foundation, a body that most of the telecoms subscribe to.