Industry Group Calls For Lower Taxes On Mobile Phones - InformationWeek

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9/26/2005
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Industry Group Calls For Lower Taxes On Mobile Phones

In 16 of the 50 developing countries surveyed, taxes represent over 20 percent of the total cost of owning and using a mobile phone. An industry association contends this is holding back economic development in these and other nations.

LONDON — The GSM Association has called for the high taxes levied on the mobile phone industry in many developing countries to be reviewed as they have made mobile communications unaffordable for hundreds of millions of people, holding back social and economic development.

The call came as the Association unveiled a detailed study into the problem which showed that in 16 of the 50 developing countries surveyed, taxes represent over 20 percent 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 $40 a year in taxes on handsets and mobile services.

Speaking about the study on the opening day of the 3GSM congress in Singapore, Rob Conway, chief executive officer of the GSMA commented: “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.

It says 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.”

The survey also found that a large proportion of handset sales in emerging markets are via the black market. In 2004, an estimated 39 percent of all handsets sold were distributed through such channels, representing a loss of $2.7 billion tax revenue in the 50 markets examined. If that trend continued, that would mean lost tax revenue of $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 $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.

The study found that 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 $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,” said Mohsen Khalil, director of the Global ICT Department of the World Bank.

However, all is not gloom. The GSMA notes that 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 5 percent from less than 1 percent. The implication is that governments can use fiscal policy to enable more of their people to become connected.

The study suggests 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 2 percent between 2006 and 2010.

It estimates that 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 25 percent.

Of the 50 countries in the study, Turkey levies the highest rate of taxes on mobile communications - nearly 44 percent of the cost of owning and using a mobile phone is made up of taxes. That represents an average of $73 in taxes each year for each user.

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