Taxing Sri Lanka’s Mobile Customers; Goose or Eggs?

Tuesday, September 4, 2007

Taxes are necessary. The consistent theme of the ’Choices’ columns has been that choices have to be made; that one cannot have the cake and eat it too.

Sept 03, 2007 (LBO) – Taxes are necessary. The consistent theme of the ’Choices’ columns has been that choices have to be made; that one cannot have the cake and eat it too.

Taxes or inflation

The present administration got elected by promising to fight a war, give government employment to all graduates, give subsidies to all and sundry, etc. It has done the giving and spent even more on money-losing enterprises like Mihin Air.

These bills have to be paid, one way or another. One pays through taxes or through inflation caused by money printing. There is no free lunch, contrary to the beliefs of many of our voters.

Paying through taxes is the better choice of the two. The best choice, of course, is to reduce government expenditures, but that message is said to have few buyers in the political marketplace. So, absent politicians willing and able to convince the people that hard choices have to be made, we?re left with a choice between taxes and money printing.

When I was Director General of Telecommunications there were less than a million phones (fixed and mobile) in the country. At that time, I was asked to persuade the government to exempt the fast growing telecom industry from the newly introduced goods and services tax. I did not, because it was not reasonable to ask for exemptions from a general tax.

So this column is in no way an objection to taxes. But it is an objection to certain kinds of counterproductive and unfair taxes: the kinds of taxes that are to be debated in Parliament on the 6th of September, specifically:

? The tripling from 2.5 percent to 7.5 percent of the ?Cellular Mobile Telephone Subscriber Levy? on the phone charges paid on every one of 5.9 million plus mobile SIM cards in operation; and

? The imposition of a regressive, usage-insensitive 50 rupee tax on the above mobiles subscriptions.

These taxes are akin to harassing the goose that is laying the golden eggs; while leaving alone the duck that is laying ordinary eggs. The former act is, as everyone who has read the fable knows, counterproductive: a harassed goose lays fewer eggs. The latter is unfair. The inequity does not end there, but more on its multiple forms later.

Golden eggs

In 2006, the post and telecom sub-sector contributed to 20.1 percent of national economic growth. This was the largest contribution made by a single sub-sector.

The financial services sub-sector (9.7 percent of the entire GDP) contributed only 13.5 percent and the entire manufacturing sub-sector (16 percent of the GDP), only 11.8 percent. A larger contribution to growth was made by the post and telecom sector which constituted just 7.4 percent of the economy.

The economic growth of the country would be lower if not for the rapid growth of this relatively small sector.

It is obvious that the sub-sector?s performance is driven by telecom, not by the moribund post office. Within the telecom industry, growth is driven by the mobile segment, the segment that is now being targeted for punitive taxation.

Continue reading “Taxing Sri Lanka’s Mobile Customers; Goose or Eggs?

Source: Lanka Business Online (link opens in a new window)