GSMA: Mobile phone is not champange — MobileMonday Global: Industry News

^{Lowering mobile taxes fuels growth} GSMA: Mobile phone is not champange

14 Feb 2007 at 14:22 GMT Timo Poropudas

Usage of mobile communications is a powerful economic growth engine, which governments can fuel by lowering taxes on mobile services and handsets, according to a new study undertaken by Deloitte for the GSM Association.

In a developing country, an increase of 10 percentage points in mobile penetration will lift that country’s annual economic growth rate by 1.2 percentage points, the study found. That represents a major uplift - if the proportion of people with a mobile phone in an economy, growing at 4% a year, rises from 10% to 20% that would boost the economic growth rate to 5.2% a year.

Despite the evident economic and social benefits of mobile communications, 16 of the 101 countries analysed in the study tax mobile services or handsets as if they are luxury goods rather than a vital means of communications, according to the study. In East African countries, for example, taxes generally account for between 25% and 30% of the total cost of owning a mobile phone compared with a global average of 17.4%. In Turkey, 44% of the cost of owning a mobile phone is due to taxes.

“Taxing mobile services and handsets as if they are caviar or champagne is counterproductive,” said Tom Phillips, the Chief Government and Regulatory Affairs Officer of the GSMA, the global trade association for mobile operators.

“This study adds to the growing weight of evidence that growth in mobile services is a fundamental requirement for economic growth, delivering swift and efficient communications. Governments should recognise this and adjust their tax policies to encourage, rather than constrain, mobile usage”.

In many cases, cutting taxes on mobile services will lead to an increase in overall tax revenues in the medium term because of the positive impact on the economy, the GSMA concluded.

“The impact that mobile phones have on the developing world is as revolutionary as roads, railways and ports, increasing social cohesion and releasing the entrepreneurial spirit that stimulates trade and creates jobs,” added Professor Leonard Waverman of London Business School and one of the first experts to quantify the link between mobile penetration and economic development.

Twenty countries in the study impose higher taxes on mobile communications than they do on fixed communications even though the United Nations, the World Bank and other international development organisations regard mobile communications, not fixed, as the most cost-effective way to connect people in the developing world.

“We believe that any taxation policy should be designed in a way that does not add any further barriers to access and add to the cost of service provision for the poor,” said Mohsen A. Khalil, Director of Global Information and Communication Technologies, World Bank.

“The indirect benefits to the economy of having affordable access to telecommunications services far outweigh any short-term benefit to the budget.”

Dennis Knowles, Deloitte partner, added: “We would urge Governments and mobile operators to work together to determine the economic impact of the sector, the ideal tax mix and how these combine to meet the objectives of the country.”

The highest levels of taxes on the total cost of mobile

Taxes as a percentage of the total cost of ownership

1 Turkey 44.6%
2 Tanzania 29.4%
3 Uganda 29.2%
4 Brazil 28.0%
5 Ukraine 26.7%
6 Zambia 26.4%
7 Dominican Republic 26.3%
8 Ecuador 26.2%
9 Greece 25.6%
10 Argentina 25.3%