Cell phone firms call for rethink of taxes

PUBLISHED : Monday, 26 September, 2005, 12:00am
UPDATED : Monday, 26 September, 2005, 12:00am

Trade association says high levies are stifling development in poor countries

An international alliance of mobile network operators and suppliers has called for a sweeping review of government tax policies worldwide, claiming that high taxes on mobile phones and services hold back economic growth in many developing countries.

The GSM Association, a trade group led by 680 Global System for Mobile-standard cellular service providers and more than 150 telecommunications equipment makers, said high taxation had made information access unaffordable for a vast number of people and encouraged a thriving global black market for mobile handsets.

They claim it has widened the so-called 'digital divide' between the world's information haves and have-nots. The International Telecommunication Union, a United Nations agency, has estimated that making a simple telephone call remains out of reach to about one billion people worldwide.

'There is a great irony in the way governments tackle the digital divide,' said Robert Conway, chief executive of the GSM Association. 'They say they want more of their people to have access to communications, yet they impose high taxes on mobile phones and usage.'

In a 72-page study released today, the association found 16 of the 50 developing countries it surveyed levied taxes representing more than 20 per cent of the total cost of owning and using a mobile phone. The annual cost of taxes ranged from an average of US$24 to US$179 per mobile phone user.

The report also found 19 countries levied extra taxes such as service-activation fees, costing an average of US$13 a year per user.

Such taxes are ill-conceived, according to development experts. '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 World Bank's global information and communications technology department.

The association also found that 39 per cent of all handsets sold last year in the 50 surveyed countries - including China and India - were distributed via the black market.

Black market sales meant a total loss of US$2.7 billion tax revenue in those 50 markets. If the trend continued, it would deprive those governments of US$24.5 billion in tax revenues over the next five years.

The GSM Association study is the first to examine the impact of taxes on the affordability of mobile phones in a large number of developing countries.

'This tax report seeks to place mobile taxation on the agenda of governments and other multilateral institutions involved in regulation and development,' association chairman Craig Ehrlich said.

The study showed that governments in Asia tend to levy lower taxes on the mobile communications sector than governments in Latin America and Africa.

The association noted that mobile communications taxes in China are relatively low, meaning that it will be able to narrow its regional digital divide faster than many other developing countries.

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

High taxes on mobile phones and services also run counter to a multilateral deal made by governments to improve access to communications.

At the World Summit on the Information Society in 2003, 175 countries signed up to a commitment to give more than half the world's population access to information and communications technologies by 2015.

If governments took that approach to their mobile communications tax policy, their goal of connecting more people could be achieved within five years, said the association.

It also concluded that if a government lowered sales taxes on mobile services by just one percentage point, it would boost the number of mobile phone users in its country by more than 2 per cent between next year and 2010.

It said in some cases, lowering taxes on mobile communications could actually increase a government's total tax revenue in the longer term. Each new mobile phone user would generate an additional US$25 a year in service tax revenues at the current levels of taxation on usage.

Earlier studies have concluded that greater use of mobile phones can give developing economies a significant boost. A 10 per cent rise in the proportion of a country's population with a mobile phone will lift annual per capita gross domestic product growth by 0.6 per cent, according to research by the London Business School.