East Africa countries favor ICT sector in budgets

Rwanda has become the second country in East Africa to eliminate Value Added Tax on mobile handsets, in its latest effort to increase uptake of telecommunications services.

Kenya zero-rated handsets for tax purposes last year, in a move seen mainly as a way to curb imports of grey-market handsets from the Middle East and Asia, which industry insiders claimed had stunted growth of the branded handset market.

In its 2010/2011 budget, Rwanda made extensive alterations to its tax regime aimed at making it easier for people to do business and communicate. Value Added Tax on handsets and SIM cards has been scrapped.

"This is a clear indication that the mobile industry has a major role to play in the growth and uplifting of people and country; we believe that the mobile sector is a key driver of economic growth in Africa and other emerging countries and Rwanda is once again showing why it is a leading giant in ICT adoption in Africa," said Dorothy Ooko, Nokia's communications manager for eastern and southern Africa.

Ooko was involved in efforts to zero-rate handsets throughout the whole region.

However, Rwanda increased the excise duty on airtime from 5 percent to 8 percent, which was perceived by analysts as giving and taking at the same time.

"Despite the VAT changes, does an increase on excise duty on airtime really encourage telecommunication?" said analysts from auditing firm KPMG, in a budget report for the region.

In Uganda, the government scraped VAT on software licenses, which is in line with last year's zero rating of computer hardware and accessories.

Kenya, meanwhile, has made bold steps towards encouraging use of online government services, especially with the Kenya Revenue Authority. To popularize filing of online tax returns, all people using online services will be exempt from the quarterly filing obligations that attracted penalties if submitted late.

The government will spend 1.3 billion Kenya shillings (US$15.4 million) to buy 300 computers in each of the 210 constituencies represented in parliament but there are no provisions for software licenses for the hardware, signaling that the government may be pushing open source software options to reduce costs.

Kenya's IT community engaged in a lengthy debate over whether the government should enter a deal with Microsoft, which has been supporting the education sector, and whether the computers will be branded, clones or refurbished.

"We will be watching keenly to see what kind of deals Microsoft will try to push to the government to include their software in the computers probably at a lower price; the open source community is available and willing to advise the government," said Evans Ikua, chairman of the Linux Professional Association of Kenya.

The budget allocations in East Africa seem to favor the ICT sector but there are still some challenges with tax policy integration, with some countries zero rating IT products and others still taxing, which may allow traders from one country to buy in country with zero tax and evade tax in their countries.