Developing Telecoms | Tax - the Enemy of Mobiles?

24 May 2012

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Tax - the Enemy of Mobiles?

Monday, 17 October 2005 16:40 | Alec Barton

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According to a new study of 50 developing nations commissioned by the GSM Association, if governments would scale back taxes, the number of mobile users would soar by hundreds of millions.

Mobile phones were supposed to be cheap for citizens of developing nations. Under a GSMA initiative, manufacturers came up with models that cost very little to produce, and they have recently driven that price down even further. Despite the cheap phones, costs still are high in many countries because of the taxes.

"The results are surprising in terms of the degree to which taxation acts as a barrier for users, preventing potentially hundreds of millions of people from affording mobile communications and holding back economic growth and social development in many countries," the GSMA says.

The GSMA study, based on tariff data supplied by Tarifica (www.tarifica.com ) in its Prepaid Tariff Report, found that taxes on mobile phones and services in 16 of the 50 countries studied represent more than 20% of the total cost of mobile ownership. In 19 countries there are additional telecom-specific taxes, eg service-activation taxes, in addition to general sales taxes, the report adds. In total prepaid and post-paid tariff data (including one-off subscription fees, monthly charges and per minute pricing data) was supplied by Tarifica for 135 operators in all 50 countries.

The GSMA also cites a conclusion by the London Business School, which analysed the data in the study, that if all sales and customs taxes on mobile handsets were dropped, mobile penetration would soar by 20 % in the countries studied. In terms of units, the GSMA says, that represents 930 million low-cost handsets that would be sold by 2010.

Cutting mobile usage taxes by just 1%, the GSMA adds, would boost the number of mobile users in a country by 2%. Eliminating special taxes in the 19 countries that have them would result in 34 million new subscribers by 2010.

Another result of the high taxation, the report also found, is a booming underground economy in handsets. Some 39% of all mobile handsets sold last year were sold 'unofficially' - a situation which the GSMA says represents a loss of tax revenues in itself.

"The mobile industry has made considerable strides in driving costs down through lower handset costs and innovative service solutions for lower income groups, as well as extending mobile coverage to 77% of the world's population," the GSMA concluded. "More still needs to be done. In the light of the findings of this study, more governments now need to take up the baton and re-evaluate the impact of their tax policies on mobile communications. Governments and mobile operators should work together to determine the ideal tax levels for their particular countries."

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