High Taxes Keep Mobile Phones Out of Reach – GSMA
Friday, September 30, 2005
High taxes in many developing countries have made mobile communications unaffordable for hundreds of millions of people, holding back social and economic development, according to a study by the GSM Association (GSMA).
GSMA is the global trade association representing more than 680 GSM mobile phone operators across 210 countries of the world. In addition, more than 150 manufacturers and suppliers support the Association’s initiatives as key partners.
According to the GSMA research, governments have huge scope to improve access to communications in the developing world
In 16 of the 50 developing countries in the study, taxes represent more than 20 per cent of the total cost of owning and using a mobile phone.
In 14 of the developing countries, the average mobile phone user pays more than US$40 a year in taxes on handsets and mobile services.
Chief executive officer of the GSMA Mr. Rob Conway, said that “There is a great irony in the way governments tackle the digital divide, they say they want more of their people to have access to communications and yet they impose high taxes on mobile phones and usage.”
The study, which was conducted by Pyramid Research and Frontier Economics, with support from Deloitte & Touche LLP and Tarifica, on behalf of the GSMA, is the first research to examine the impact of taxes on the affordability of mobile phones in a large number of developing countries.
Mobile phones have the potential to give hundreds of millions of people in developing countries access to communication and information technology, but only if governments work with the industry to reduce the total cost of owning and using a mobile phone.
Nineteen of the countries in the study even levy additional taxes, on top of standard sales taxes, on mobile phone users. Some of these additional taxes are telecom-specific, such as service-activation charges. These special taxes average US$13 per year for each user.
Development experts say such taxes are ill conceived. “Poorly-designed special taxes on the sector will slow rollout and deny access to powerful tools in the fight against poverty to the very people who need those tools the most,” director of the Global ICT, Mohsen A Khalil said.
The GSMA study also found that a large proportion of handset sales today in emerging markets are via the black market.
In 2004, an estimated 39per cent of all handsets sold was distributed via the black market representing a loss of US$2.7 billion tax revenue in the 50 markets examined. If that trend continued, that would mean lost tax revenue of US$24.5 billion over the next five years.
The GSMA and mobile phone makers are together creating a new category of ultra-low cost phones that will sell for less than US$30 at wholesale, but in some countries the retail price of these phones will be much higher because of import duties and sales taxes. If low-cost handsets were exempt from import duties and sales taxes, the GSMA study found that up to 930 million additional low-cost handsets would be sold in the 50 markets covered by the study between 2006 and 2010.
Some countries have already made tax reductions. The Indian government has brought down import duties on handsets over the past three years, helping to boost the proportion of its population with mobile phones to more than five per cent from less than one per cent. The implication is that governments can use fiscal policy to enable more of their people to become connected.
The study also found that a government that lowered sales taxes on mobile services by just one percentage point would boost the number of mobile phone users in its country by more than two per cent between 2006 and 2010.
In some cases, lowering taxes on mobile communications could actually increase government’s total tax revenue in the longer-term.
Each new mobile phone user would generate an additional US$25 a year in service tax revenues at the current levels of taxation on usage.
According to the study eliminating all telecom-specific and other special taxes would boost the number of mobile users in the 19 affected markets by 34 million by 2010 and mobile voice traffic in these markets by 25per cent.
Of the 50 countries in the study, Turkey levies the highest rate of taxes on mobile communications – nearly 44 per cent of the cost of owning and using a mobile phone is made up of taxes. That represents an average of US$73 in taxes each year for each user.