Kenya’s biggest mobile operator Safaricom plans to set up a factory that will a capacity to assemble between 1.2 million and 1.4 million smartphones every year. The Telco, however, warned the high taxes could cripple their ambitious project, which is in tandem with President William Ruto’s plan for affordable smartphones.
The telco made the revelations as it opposed the new taxes on mobile phones as contained in the Finance Bill, 2023, saying the new levies will make it difficult to realise the target price of a $ 50-smartphone (Sh6,850) since the proposed taxes will raise the cost of locally assembled smartphones to Sh11,500.
“If we were to work with the President’s vision of a 50-dollar phone, we need to address the question of import, excise and output VAT (Value Added Tax) for me to save Sh4,000 and bring down the cost from Sh11,500 to Sh7,500,” Safaricom Head of Venture Karanja Gichiri told MPs during public hearings on the Finance Bill.
The telco, Gichiri said imports four million phones every year, but is now working on an assembly line, but the taxes could jeopardise the project.
“Today we have one local assembly line that recently started,” he noted.
“The most expensive part of the phone is the microchip that runs the 4G network within the phone. We have sourced and the appropriate base for a good phone is $40 driven by the chip and components.”
He added: “After that, the assembly of the phone will cost Sh300 including factory profit margins. We want to pass the cost-benefit to the consumer,” he said.
Besides the assembly costs, he said the firm will have to deal with last-mile connectivity, where it will be required to part with another Sh1,400 while the output VAT for the device is Sh1,500.
“This brings the final price to Sh11,500 with the manufacturer taking only Sh300,” said Mr Gachiri.
He said the key contributors of costs are taxes on transporting the phones to Mombasa port, adding that Safaricom spends an additional Sh2,300 for a Sh5,000 phone largely driven by import duty and excise duty.
He said When President William Ruto announced the production of the Sh5,000 locally assembled smartphones, the exchange rate was about Sh118 to the dollar but this is now at Sh135.
“We estimate 120 million new subscribers in Africa will need phones and taking advantage of Africa Continental Free Trade Agreement (AfCFTA), we will be leaders in Africa and the world in mobile telephony,” said Gachiri.
President Ruto last December announced that Kenya will manufacture the cheapest smartphone in Africa this year whose cost will be less than Sh5,000 in a bid to enable all Kenyans access digital platforms for business and government services.
