Any tax man can raise the amount of tax you have to pay on a product or service, but it is the true genius who convinces you that it’s really going to cost you less. In Minister of Finance Chris Sinckler’s latest price hike project, the Government has decided to forego its plan to tack on three cents to every minute of airtime sold, as announced in his June Budget, and instead raise the Value Added Tax (VAT) on airtime from 17.5 per cent to 22 per cent.
He was quoted in the Press as saying that the decision was taken to make the switch because the two cellphone providers here, Flow (formerly LIME) and Digicel, said it would be too costly to try to set up collection and payment of a new excise tax on their operations. “So instead of raising $32 million…we will get about $15 [million] to $16 million. It’s about half of the amount and it’s actually less burdensome than it would have been if it were from the original proposal,” he reportedly said.
Now, dear readers, don’t you just love a minister who steps in and tries to save you from the extra taxes he himself was about to impose on you? But wait, there may be more. In his June Budget speech, the Minister of Finance noted that this three cents was not a whimsical thing. It was definitely not a case of “let them be charged three cents, just because I say so!”. No, it had emerged out of careful research.
Here is how Sinckler explained it in the Budget speech: “Information gathered from the Telecommunications Unit of the Division of Energy and Telecommunications indicates that annual total minutes used by LIME subscribers for 2014 were approximately 575.9 million minutes and for Digicel subscribers approximately 514.5 million minutes were used,” said Sinckler. To connect to landlines or other mobile phones, Digicel was charging 72 cents per minute and the then LIME 65 cents per minute, he said.
So if we do the math in our head, you have 1.1 billion minutes sold by Digicel and LIME, and if you got three cents in tax for each of those lovely little minutes, well, you would be looking at something like $32 million. And at the rates per minute mentioned above it worls out to between 4.1 per cent and 4.6 per cent. However, if you have a corporate plan, you pay a lot less per minute. I never understand my LIME-Flow bills anyway, but despite all the jargon about “bolt-ons” and “anytime minutes” it looks like my company plan costs around $480 for 2 000 minutes, and this includes some puny data allowance.
So ignoring the data for a moment, it seems like I pay something like 24 cents per minute, so a flat three cents per minute for me would work out to around 12 per cent. Was this the real problem? That the Budget spoke of a flat charge and not a percentage, when there are multiple rates out there? Well, anyway, the idea of just over four per cent for the excise tax on open rate airtime minutes metamorphosed – no doubt by sheer coincidence – into an extra 4.5 per cent in VAT. Hence the 22 per cent.
It still seems like a nightmare in the making to me because we will have one bill with two sets of VAT on it. But it will help the phone companies to accomplish their goal of making understanding your bill almost completely impossible. But how roughly the same tax rate will bring in half the revenue may be due to the way VAT is worked out.
All Sinckler will accomplish in the long run is to turn meek phone bill payers into hardened WhatsApp, Viber, Messenger and Skype users, along with several other apps that allow you to make no charge calls as long as you are in a wi-fi zone. Then the telecoms will demand, as Digicel did in Jamaica, that a tax be put in the system to recoup their losses in this regard.
But technology is changing so fast that it is very hard for any minister of finance or phone company/telecom to predict regular revenues year after year. The market is driven by the consumer and the big tech firms are not on the side of the government because there is too much at stake. Just look at what is happening to Yahoo! If the consumer doesn’t make you number one you have a hard time keeping your stock price up, and that is usually the beginning of the eng.
Of course, the wider picture is one of a government trying to tax too early the businesses which are the country’s brightest hopes for the future and drivers of large parts of the emerging new economy. No small business, far less a big one, can do without a mobile phone or two. They are the very heart of the mobile office, as most small business people literally run their enterprises in and from their vehicles.
Like its heavy-handed licensing regime imposed on the emerging renewable energy sector, the Government is trying to count its chickens before they hatch. But in the case of the additional VAT on airtime minutes, trying to increase your tax take may prove as flighty as a summer breeze, and before you blink, vanish into, well, thin air.