By Catherine Sasman
Users of pre-paid airtime sold by telecommunications providers will be slapped with a 15 percent value added tax (VAT) from today.
This follows a 15 percent VAT imposed by the Ministry of Finance, which was originally scheduled for implementation in September last year.
The VAT, said mobile phone operators MTC and Cell One, will be levied on the face value of the pre-paid vouchers and will be deemed to be inclusive of VAT.
This means that a pre-paid voucher of N$10 will yield an N$8.10 airtime, with the remaining N$1.30 VAT going to the Receiver of Revenue.
Residential users of mobile telephones were excluded from VAT when first implemented in Namibia to promote the use of telecommunications services.
Pre-paid services were assumed to be predominantly residential in nature and were zero- rated [no tax levied].
Permanent Secretary in the Ministry of Finance, Calle Schlettwein, said the
VAT was imposed because it is a legal provision in the VAT Act that needed to be implemented earlier.
An exemption is on landlines.
“We have realised that pre-paid airtime remains a VAT-able service,” said Schlettwein.
The implementation came late, he said, because of operational hiccups experienced by service providers, and hence the second extension on the VAT imposition.
“We have a ruling to implement from the Receiver of Revenue and we are unfortunately duty bound to comply. It leaves us as operators with no choice but to pass the new tax onto consumers which will definitely restrict market growth,” said Miguel Geraldes, MTC Managing Director.
Cell One CEO Lars Christian Luel said the operator would have to implement the new ruling “as best we can”.
Telecom Namibia has, however, taken a different route, and decided not to pass on the VAT levy onto its customers.
“This decision represents an effort to bring relief to the vulnerable groups most susceptible to the increased inflation that the VAT can cause,” said Managing Director of Telecom Namibia, Frans Ndoroma.
“Here we have in mind a huge number of prepaid card users, most of whom are students, elderly and non-income earners, for whom the imposition of the VAT would therefore worsen their financial plight.
By subsidising this VAT, Telecom Namibia stands to lose “millions” per month, said Manager: Finance and Administrator, Robert Offner.
Ndoroma also promised that this subsidisation would be a permanent benefit to its users, with the aim to minimize the impact.
A study by Nepru indicates that 92 percent of mobile phone users buy prepaid mobile services.
“The burden of that increase is likely to be borne by consumers, the poor and informal small businesses in particular, depending on how much of the increase the operators pass through,” Nepru said.
Nepru suggested that instead of raising taxes on telecommunications, more efforts should be made to reduce the costs of telecommunications.
“This will impact negatively on economic growth and increase the digital divide within Namibia. It will further throw back Namibia’s international competitiveness and make it one of the most expensive countries for telecommunication services in Africa,” said Nepru.
It suggested a new telecommunications Act, a strongly resourced and independent regulator for the entire ICT sector, and clear policy guidelines for the regulator.
“Government has failed to deliver any of the three in 2007 despite verbal commitments of key policy and decision makers. The regulatory limbo remains the highest risk for any investor in the sector. Imposing VAT on pre-paid services will just make the situation worse,” said Nepru.
Schlettwein, however, argued that it is not the imposed VAT that will make pre-paid telecommunications more expensive, suggesting that service providers should consider reviewing their tariffs.
“We are aware of their profit margins, which are not small. It is also the
pricing of these services that makes it expensive,” Schlettwein said.
MTC’s Albertus Aochamub, however, said that the company had not introduced any price increases over the last four years.
According to Nepru, MTC’s shareholders have received about 50 cents in earnings on every dollar invested in equity capital for 2002 to 2004. Since then, the Return on Equity (RoE) – which equals the net income divided by the shareholders’ equity – has been declining.
The imposed VAT will therefore reduce the profit margins, but not burden consumers, since the returns on equity are considered “very high” in international comparison.
Nepru, however, suggested that if companies are “too profitable” that a regulator – the suggested independent regulator – should intervene, and not the Receiver of Revenue.
It said the profitability for operators would decrease as competition picks up among service providers.
Schlettwein said the ministry would scrutinize Nepru’s recommendations and consider amendments to the VAT Act.