Safaricom, the top tax payer

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Safaricom
  • 4 years ago
  • Posted: October 29, 2014 at 2:49 pm

“You can’t tax business. Business doesn’t pay taxes. It collects taxes,” or so said Ronald Reagan. Interesting statement, especially when you are of the supposition that business is just an extension of government and we the people, of ordinary manner, are essentially enlarging the coffers back at the Eternal City. Well, in that light, Safaricom is on stilts deriving the most from her plebeian citizenry. In actual fact, 43 % of Kenya’s Gross Domestic Product passes through one of its product-line, yes folks, you guessed it right, MPESA; if that is not big business, ergo big governments, then I don’t know what is.

Caesar’s Coffers: A Brief History of Taxation

One cannot begin to study a phenomenon without understanding the etymology of the world describing it. With that in mind, the word tax was given to the English language in the middle ages, 14th century, with its fiefdoms and vassal fealty. And we all know that the learned folk of those times employed heavy use of the Latin language, ERGO, it is no surprise that the root word of tax is taxare  meaning ‘to assess’. Prior to that, the English used the word ‘task’ derived from the Old French. Progressively, the two terms were in common use, the first requiring labor whilst the second referring to money. ‘Tax’ then morphed to mean something that is wearisome and vexing, especially to the vassals. And so, the powers that be moved to come up with a more appealing term such as ‘duty’.

Taxation has the eternal fate of not escaping negative associations, specifically war and extortion. An instance is illuminated about the Tsar Peter the ‘Great’ on how he taxed everything from candles, hats, nuts, horses, chimneys, water, boots, and pause for it, beards (yes, having a beard was a pretty big deal back in the day, I wonder if they should introduce a ‘beard’ tax, oh wait, when you get shaved, buy a Gillette blade, aah, you are being taxed, don’t take my word for it). China having one of the longest of all written historical records, we gather that it levied taxes some 3,000 odd years ago. They were being imposed by the military as the Empire grew in breadth and depth.

As a matter of fact, they were the first to create the bureaucracies to collect and administer them.

Following directives from the Pharaohs, ‘scribes’ were tasked (pun intended) to create ways in which to accumulate funds. One of the ways they did this was by imposing a tax on cooking oil (affirmative, guv’nah or duchess, unimaginable it would appear, but so do you, unless you in subsistent fashion produce your own cooking oil, purchase is inevitable, VAT, folk).

Frequent audits were made to ensure that oil was not recycled; actually, the first written account of ‘avoidance’ (brings to mind of tax escapades and havens). ‘Genesis’ records that a fifth of all crops should go to Pharaoh, that’s 20 percent of all crop production (do the math). City states in Greece imposed the eishpora to pay for her military excursions (the hardened folk at Sparta had to comply in order for their 300 hundred to go and embrace a ‘beautiful death’); Athens enacted a monthly poll tax on all foreigners. I have not even mentioned the ‘maddening taxes’ of Xerxes, the god-king and the Roman’s quest for world domination (Imperial Rome derived tribute from colonized persons to multiply the booty of the Empire, Julius Caesar imposed a one-percent sales tax, while Augustus instituted an inheritance tax so as to develop a pension fund for the military, mighty clever of him, but don’t take my word or it. Nonetheless, human slavery still was the most lucrative form of tribute for Rome and Greece.

Faith was not left behind in this taxing business. When Rome’s power declined in Europe, came forth the religious institutions which accumulated quite material and political power (vicarius fili dei, citta della vaticano, unto this very day). The taxation came in various forms- the sale of indulgences, tithe (10 –percent), ‘Islamic tax’, the khums, or one-twentieth, half of the tithe, which have specified uses such as providing respite for the poor. The Caliphates or Islamic rulers imposed the ‘jizya’ in the First Century, Common Era. And of course, we cannot the Aztecs, Mayans, and the Inca who raised forms of taxes, particularly concerned with observation of ritual (I actually believe they had an ‘end-of-the-world prediction’ tax, but then again, that’s just my ten-cent worth).

Fast-track to the current century (interesting journey through the ages, aye), taxation has taken a quite a subtle form, but still with connotations from ages hence. Post-Cold War sentiments demanded reduced governmental size, privatization and tax-cuts for the wealth of private individuals that are more often than not, the wealthy. With the present-age corporate globalization, governments are finding it difficult to exercise control or collect taxes, especially with the growing neoliberal lobbying.  Corporate and private wealth still relies on government to provide certain services, particularly when Free-market orthodoxy proves a failure and a bail-out is needed (too big to fail goes the mantra). Military budgets are still growing exponentially (and where is that money coming from, alas, from we the people). There you have it, your historical fortification has been built, but you must ever remember this adage that has a global consensus, “that only the little people pay taxes.”

A Study in Emerald:  The Hour of Seven

Safaricom, for the seventh consecutive year has been dubbed as the highest taxpayer in Kenya. Good news for the government and by extension, Safaricom (for its profile, remember the Reaganian Supposition). Safaricom enjoys a market share of almost seventy percent, which translates to about 21.6 million users. EBITDA (Earnings before Interest, Taxation, Depreciation, and Amortization) stood at 23.8%-nascent to 60.9 billion shillings (700 million dollars), the year ended 31 March from previous recording of 49.2 billion shillings. Managing a 31 percent rise in pre-tax profits to 23 billion shillings with regard to the previous financial year profit of 17.54 billion. The aggregate revenue grew by 16 percent to 144.7 billion shillings in 2014 from 124.29 billion KES. Safaricom attributed this strong revenue growth from the strengthening of its voice services that shot up by 34 percent.

Words from Bob Collymore Safaricom’s C.E.O. revealed that MPESA business rose by 22 percent to KES 26.6 billion, with mobile data growth hitting 41 percent to 9.3 billion (fixed data revenue cumulated to 2.6 billion shillings, 22 percent increase). Consensus is that the record-breaking profits were driven by all revenue strands, most especially by service which posted a cumulative rise of 17 percent to KES 138.4 billion, surfing the crested performance of all non-voice income strands that are sms, M-pesa (mobile money financial device), and mobile data.  The robust profits have laid the platform for Safaricom to increase its cash flow from 14.51 billion in 2013 to KES 22.69 shillings in 2014.

Mr.Collymore was of the opinion that the 16.4 percent revenue growth has firmly placed Safaricom as Kenya’s most excellent brand with a Kenyan resonance score of 94 percent in league with an overall equity of 85 percent (I wonder sometimes whether Safaricom’s commendable Economics is a function of positive customer sentimentality, but rather as a proportional function of its near-monopoly market share, first-mover advantage and the somewhat cultural inelasticity of the Kenyan populace when it comes to the use of its services).

The end-year results have given Safaricom the pomp to review its full-year forecast by margins of more than 10 percent.

The good captain of the Safaricom yacht, more like a cruise liner of some sort, Bob enacted that their customer base grew by 11 percent and its capital expenditure gave a cool 12 percent crested wave to 27.8 billion shillings. Sailing the great seas of enterprise, Safaricom is arming itself with the requisite tools for such an excursion, but the words straight from the capitane might suffice such that your credulity is not too severely taxed:

“We have increased the population coverage of our 2G and 3G networks, completed network modernization in six key cities and rolled out fiber to 50 per cent of our base stations in Nairobi.”

Collymore went on piping that the Lipa na Mpesa platform is going to turn the course of the entrepreneurial destination to a more auspicious ‘land-ho!’

Giving to Caesar and Big Business

Corporate compliance sees a unique relationship ensue between government-corporate and corporate-revenue. So, Safaricom files the largest tax compliance certificate at the Exchequer’s vaults, and to this end, certain ramifications emerge in the form of internal compliance strategy and the exchequer’s finances, especially disbursal. The ideal model is where large business works hand in hand with Revenue administration in fulfilling dual compliance strategies. This cooperative model involves the cultivation of mutual trust and interest.

Ladies and gentlemen, it is important to note that not all revenue is created equal and as such excellent theoretical frameworks must be created to address that indefeasible declaration. The usual dangers involve reduction in company revenue which translates to lower collections by the government. The ultimate danger being loss of that tax revenue altogether when the company goes bust, especially for a large contributor such as Safaricom, the government would lose a large chunk of its income from the fall. And that is why both government and corporations are wary of this ever happening. Thusly, this delicate relationship needs to be managed strategically. All over the world we have seen governments to the level of providing tax money to big business to bail them out of the credit crunch. We observe this following the 2008 credit crises; it saw the Federal Reserve institute programs like TARP (Troubled Asset Relief Program) which was mean to mitigate the severe pain caused by the economic disturbance.

Mitigation of this danger and others requires clearly defined terms on categorizing taxpayers based on the relative risk posed by business as perceived by government. The risk categorizations provide the government with the compliance approach it takes; the tax payers are apprised of the knowledge of which category they belong. Consequently, the concern (of entities, government and business) falls under several broad themes as follows:

-transparency

-lack of differentiation and the manner in which government notifies the taxpayers of their categorization

-the proportionality of subsequent compliance activity

-pertinence and accuracy of the inputs into the process

The above themes apply most especially to big business and this relationship that is the revenue collection by government from business should be managed quite effectively by ensuring operational efficiency in the nature of the risk assessment framework in the large business segment and subject to progressing evolution.

At the end of the day, should you hold the opinion, “Income tax returns are the most imaginative fiction being written today,” goes Herman Wouk.

What is your opinion on the topic?
Stefan Wolf
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