Safaricom profits are taking a direct hit from regulations
Legal changes including slashing of mobile termination rates (MTR) from 99 cents to 58 cents as well as new tax measures have hit Safaricom’s bottom line reflecting the outsized impact of the regulatory environment on Safaricom’s performance.
Safaricom’s net profit for the six months ended September fell by 10 per cent to Sh33.5 billion taking a hit from reduced interconnection revenues and the high cost of sim cards along with costs associated with investments into the telco’s Ethiopia unit.
The telco interconnects revenues dropped 13.6 per cent to Kes2.9Billion after the Communications Authority favored Safaricom rivals with a cut on charges levied on termination of calls in the Safaricom network.
Safaricom also reviewed its SIM card pricing to Sh50 plus Sh50 airtime upon first top-up to include the excise tax and increased pricing on mobile phones by at least 10 per cent to reflect the pain of the new taxes to the consumers.
The meteoric rise of Kenya’s largest telco has placed Safaricom on the spot attracting activism and legal changes that hit the company’s bottom line.
Read also: Safaricom’s half-year profit is down 10% to Sh33.5 billion as Ethiopia expansion slows growth
Members of Parliament have made several attempts to break Safaricom’s voice and text message business from the mobile money business a move that will spin off operations and create a parallel structure that will affect operations costs.
Safaricom has also taken the largest hit from the government’s hot pursuit of taxes from the mobile money space.
The National Assembly Finance committee voted to increase excise duty on telephone and internet data services to 20 per cent from the current 15 per cent last year after increasing the tax from 10 percent to 15 percent in 2018.
In the Finance Act 2022, the government imposed a 10 per cent excise duty on the importation of cellular phones, an extra Kes50 excise duty on every imported ready-to-use SIM card and an additional to East African Community’s 25 per cent import duty on phones as part of the Common External Tariff.
The tax increases have come even as analysts warn additional charges are definitely going to hurt innovation and jobs – especially for the self-employed youths who rely on internet connectivity for their virtual businesses.
