By Alexander Nkosi
“Ubushiku bufwile insofu nelyashi lyansofu..tax!”
I will try to provide a critical analysis and link this to our current economic challenges and options available.
We pay tax on airtime whether we use it for calls or data. For those who use data to call, they have to pay the new tax on data calls. What this means is that while the prices of airtime remain the same, the billing for data calls will be adjusted so that we consume more bundles forcing us to spend more. Is this coming from mobile service providers? The answer is No. Mobile service providers have highly qualified teams of analysts and managers. They work with accurate data to set billing systems. If they are losing money as more people make data calls as opposed to ordinary calls, they will not request government to introduce a new tax, they will simply increase billing on data use so as to push more people into making ordinary calls. It is not like data calls are controlled by other firms that are competing with them. Hence the explanation that this move is meant to protect jobs does not hold. So what exactly is happening here?
We all understand government is exploring all possible means of raising funds. Before I focus on options available for raising funds, let me discuss this new tax in detail. The motivation behind the new tax is that government wants to raise funds. Technocrats worked with accurate data to come up with this decision. They looked at the degree of addiction (price elasticity of demand). People are more addicted to services that require data than ordinary calls. Internet is more addictive than ordinary calls. If government had decided to simply raise the existing tax on airtime, a lot of people who don’t use data would have done with less calls meaning less expenditure on airtime as they are less addicted. Government was not going to collect as much money. By targeting data calls, government carefully analysed figures on data calls. Knowing they are targeting people who are addicted, they know that despite the new tax, people will still continue making data calls and if they decide to switch back to ordinary calls, they will still spend more on airtime. Either way, government will end up with more money. The bottom line is expenditure on airtime or rather on data bundles will go up.
When you see the appetite to get more money from citizens through tax growing, just know government has pressing funding issues. High taxes have the potential to ‘kill’ savings and investment and lower economic activities, resulting in a counterproductive effect of lowering overall revenue collected through tax. There is no one single option available to deal with funding challenges. A mixed method approach works best. Options include: borrowing, adjusting priorities and reallocating funds to most critical areas, straight expenditure cuts, spending less on the same or even higher quality of goods and services. For us to debate on which of these methods would work better for government and citizens, we need accurate information. How much is the funding gap pushing government into introducing taxes midway? How urgent does government need this money? If, implemented, how much would each of the methods raise and how quick? The responses to these questions would help us understand the choice government has made.
People are complaining for two major reasons. Firstly the taxes are already high and secondly, the decision to increase tax as opposed to other methods like reallocation and expenditure cuts. There is also need to review how such decisions are communicated to the public. If government could demonstrate that it is revisiting priorities, cutting down on expenditure and spending the right amounts on the right goods and services, people would understand. Public perception is that government is increasing taxes and spending money carelessly, and as long as there are no practical steps taken to show that this is not the case, this perception will keep growing.