Developing Countries Held Back By Taxes On Mobile Phones, Says New Report

by Robert Lee, Tax-News.com, London

29 September 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).

The study, conducted by Pyramid Research and Frontier Economics, with support from Deloitte & Touche LLP and Tarifica on behalf of the trade association for the world’s GSM mobile operators, showed that in 16 of the 50 developing countries, taxes represent more than 20% 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.

“There is a great irony in the way governments tackle the digital divide,” observed Rob Conway, chief executive officer of the GSMA.

“They say they want more of their people to have access to communications and yet they impose high taxes on mobile phones and usage," he noted.

The study also found that nineteen of the countries 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.

“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,” stated Mohsen A Khalil, director of the Global ICT Department of the World Bank.

The study went on to demonstrate that because of the presence of these taxes, a large proportion of handset sales today in emerging markets are via the black market. In 2004, an estimated 39% of all handsets sold were 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 study concluded.

The survey also found that a one percentage point reduction in sales tax would boost the number of mobile users in a country by 2% between 2006 and 2010, whilst lowering taxes would boost the amount of revenues received by the government.

Of the 50 countries in the study, Turkey was found to levy the highest rate of taxes on mobile communications where nearly 44% of the cost of owning and using a mobile phone is made up of taxes, representing an average of US$73 in taxes each year for each user.

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