Safaricom Rules Out Sh5,000 Smartphone Production Due to Taxes

Telco giant Safaricom has ruled out the possibility of assembling a Sh5,000 mobile phone locally, citing the proposed increase of import duty, excise duty, and value-added tax (VAT). The proposed taxes would raise the cost of locally assembled smartphones to Sh11,500, making it impossible for Safaricom to meet President William Ruto’s ambitious goal of manufacturing the cheapest smartphone in Africa.

Ruto announced last December that Kenya would manufacture the cheapest smartphone in Africa this year, with a target price of less than Sh5,000. He promised to deliver the cheap smartphone within eight to 12 months of this year to ensure all Kenyans can access digital platforms for business and access to government services.

However, Safaricom’s Head of Venture, Karanja Gichiri, told MPs during public hearings on the Finance Bill that the proposed taxes would make it impossible for the company to meet Ruto’s target. “If we were to work with the President’s vision of a $50 phone, we need to address the question of import, excise, and output VAT for me to save Sh4,000 and bring down the cost from Sh11, 500 to Sh7,500,” Gichiri said. “We can scale the taxes down to Sh3,000 where it will give the final price of the locally assembled smartphone to between Sh6,500 to Sh7,000.”

A consortium of telecommunications operators and device manufacturers has also called on the Finance Committee to introduce changes to the Finance Bill to charge VAT on locally assembled or manufactured mobile phones at zero percent. The consortium argues that the proposed taxes would make it uneconomical for companies to assemble or manufacture phones locally, and would ultimately lead to higher prices for consumers.

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“There has been a decline in imports by 13.5 percent due to shortage and inflation in the fourth quarter of 2022,” Job Kabochi, partner at PwC told MPs on behalf of the consortium. “We propose that the Vat Act and the Excise Duty Act be amended to introduce a new paragraph within Part A of the Second Schedule of the VAT Act to include the supply of locally assembled and manufactured mobile phones and introduce a new paragraph to Part A of the Second Schedule of the Excise Duty Act to include disassembled/unassembled kits for local assembly or manufacture of mobile phones.”

The proposed changes to the Finance Bill are currently being considered by the Finance Committee. If approved, they could help to make locally assembled smartphones more affordable for Kenyan consumers. However, it remains to be seen whether the government will be willing to reduce taxes on mobile phones, especially at a time when the country is facing a fiscal deficit.

In the meantime, Safaricom and other telecommunications operators are likely to continue to import smartphones from overseas, which will keep prices high for Kenyan consumers. This is a major setback for Ruto’s ambitious goal of manufacturing the cheapest smartphone in Africa, and it remains to be seen whether he will be able to achieve this goal in the future.


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