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ICT policy goals must be reflected in taxes to drive mobile broadband adoption

A Telecom Advisory Services (TAS) report delivered in conjunction with the GSMA has revealed how mobile sector-specific taxation is impacting on the development and deployment of Mobile Broadband in developing countries. The study indicates how a reduction in special taxes applied to the telecommunications sectors in countries with different taxation approaches like Brazil, Mexico, Bangladesh and South Africa will translate into higher Mobile Broadband service adoption and more wealth creation reflected in additional GDP growth.

Inconsistencies currently exist in many developing countries between the levels of taxation levied against the Mobile industry and the reliance each of these countries place on Mobile Broadband to achieve broadband penetration goals.  With a widespread absence of fixed infrastructure in these markets, Mobile Broadband will become a key social and economic development lever, driving internet connectivity and bridging the existing digital divide.  As revealed in the report, every dollar reduced in taxes across Brazil, Mexico, Bangladesh and South Africa will generate additional GDP ranging between US$1.4 to US$12.6 through enhanced broadband uptake.  Despite this however, all four countries have implemented a taxation approach that actively reduces Mobile Broadband penetration by putting an economic burden on the purchase of handsets and services.

“The report’s findings clearly show how distortive taxation approaches in some countries can increase the Total Cost of Mobile Ownership (TCMO), negatively impacting development of Mobile Broadband,” said Tom Phillips, Chief Government and Regulatory Affairs Officer at the GSMA.  “This report highlights the inconsistencies between regulations aimed at developing ICT sectors and policies that single out the services they deliver as “cash cows” upon which taxes are levied.”

The study authored by renowned experts Dr. Katz, Dr. Flores-Roux and Dr. Mariscal states that at least twenty-seven countries around the globe have special taxes focussed on telecommunications services.  While it is imperative that governments apply taxes to finance spending and generate externalities in sectors where private investment is lacking, these taxation models are often extremely inefficient. Fiscal policies that apply a special tax to the telecommunications sector cause distortions that “crowd out” private spending and ultimately diminish welfare.

“It is crucial that policy makers in these countries understand the impact Mobile Broadband will have on wealth creation, and align their ICT development strategies to sustain its ongoing growth”, said Mr. Phillips.

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