Taxes must be aligned to drive mobile broadband adoption

Mobile sector-specific taxation is impacting  the development and deployment of mobile broadband in developing countries, according to a report by the Telecom Advisory Services (TAS).
The study indicates how a reduction in special taxes applied to the telecommunications sectors in countries with different taxation approaches such as Brazil, Mexico, Bangladesh and South Africa will translate to higher mobile broadband service adoption and more wealth creation reflected in additional GDP growth.
Need for mobile broadband tax reductionInconsistencies 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.
According to the study, 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.
The report says that emerging countries need to align taxation approaches affecting mobile broadband with national objectives related to information and communication technologies (ICT). If mobile broadband is understood as a key social and economic development lever, taxes cannot be an obstacle for mobile broadband diffusion.
"The findings from the report 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 of the GSM Association. "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."
Results of reduction in mobile broadband taxThe study indicates that a reduction in taxes affecting mobile broadband will translate to higher service adoption, which will ultimately generate additional GDP. In other words, for every dollar reduced in taxes, emerging countries will generate additional GDP ranging between $1.4 and $12.6. Furthermore, the foregone tax revenues will be partially or totally compensated by taxes collected on a larger GDP.
The study, authored by Dr Katz, Dr Flores-Roux and Dr Mariscal, states that at least twenty seven countries around the globe have special taxes focused 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 Phillips.