GSMA urges government to cut tax as mobile users pay more tax today than in 2007

GSMA has urged Governments to review the impact of levies on
economic growth as the average tax on mobile consumers is higher today than in

The average increase in tax, as a proportion of mobile usage
costs, rose by over one percent from 16.9 in 2007 to 18.0 percent today,
according to a new global benchmark study conducted by Deloitte for the GSMA  in
111 countries.

Taxation as a proportion of the total cost of mobile
ownership (TCMO) increased from 17.4 percent in 2007 to 18.1 percent

Some 63 countries levy mobile-specific taxation in addition
to general sales taxes.

“In this period of fiscal consolidation it is paramount
for governments to foster, not hinder, economic growth,” said Gabriel
Solomon, the GSMA’s Head of Regulatory Policy.

GSMA’s previous studies have shown that a 10 percent
increase in mobile penetration boosts a typical developing country’s gross
domestic product (GDP) by 1.2 percent and an increase in the tax burden on
mobile consumers can stall this growth.

Since 2007, 56 countries have increased the level of
taxation on mobile consumers. For instance, mobile users in the Democratic
Republic of Congo and Madagascar are paying 50 percent more tax today than they
did in 2007, according to a press release from

In countries such as the Gabonese Republic, Pakistan and
Sierra Leone, mobile consumers are paying almost twice as much tax in 2011
compared to 2007, while the rate in Malaysia has almost tripled. In all of
these countries, the increases are due to the introduction of excise duties on
mobile usage known as airtime taxes.

21 countries levy airtime taxes in addition to general sales
taxes, including 12 in sub-Saharan Africa, up from six in 2007. Consumers in
Turkey continue to pay the most airtime tax at 43 per cent, followed by the
Gabonese Republic at 36 percent, Pakistan at 31 percent, Uganda at 30 percent,
Croatia at 29 percent, and Tanzania, the Dominican Republic and the Democratic
Republic of Congo all at 28 percent.

Where applied, airtime taxes represent a large proportion of
the total level of taxation. They can represent a barrier to development of services
by reducing consumers’ usage, especially in developing countries where
consumers have lower income levels and are highly price sensitive. Airtime
taxes are typically added to retail prices, raising the cost of mobile services
and contributing to a reduction in their consumption.

Lowering mobile-specific taxes can have significant
benefits, as demonstrated in Kenya, where the Kenyan government removed the 16
percent general sales tax on mobile handsets in 2009. As a result handset
purchases increased by more than 200 percent and with mobile operators
contributing a third more in taxes in 2011 than in 2009, mobile generated
around 8 percent of Kenya’s GDP. Ecuador, the Gambia and Thailand have all cut
mobile taxes by half since 2007.

Despite the positive example of Kenya, mobile consumers pay
an average of 23 per cent tax on handset purchases and 37 countries are above
the global average. Mobile consumers in the Gabonese Republic pay 80 percent
tax on handset purchases, followed by Niger at 65 percent and Argentina at 62
percent. Consumers in Brazil, Cameroon, Congo Brazzaville, the Democratic
Republic of Congo, Guinea, Madagascar, Rwanda and Uzbekistan all pay more than
40 percent tax on handset purchases. In Latin America, taxes as a
proportion of handset costs are also high.

“This study has found that taxes on buying handsets are
notably proportionately higher than taxes on usage of mobile services in
developing markets, leading to unbalanced taxation profiles for mobile-related
services. Higher handset taxes increase the retail price which limits access to
mobile services in developing markets where consumers are particularly price
sensitive. Tax cuts in this area have the potential to significantly boost
access to mobile services and their consumption,” said Chris Williams,
Deloitte Telecoms partner.

Countries with the lowest taxation as a share of mobile
costs are those with low VAT levels and no other tax, such as China, Lesotho
and Nigeria. In Lesotho, mobile services attract a lower VAT as the government
here has recognised the social importance of mobile communications.

Regionally, Central and Eastern Europe shows the highest
average tax as a proportion of TCMO, with Turkey maintaining the top spot as
mobile consumers pay nearly 50 percent in taxes. In the European Union, higher
VAT rates, rather than mobile-specific taxes, are responsible for the
relatively high level of tax as a proportion of mobile service costs. The
Middle East/Maghreb and Africa are the regions where the two biggest increases have
been experienced, where TCMO is driven by usage taxes.

GSMA said that mobile handset sales have soared by 200 percent in Kenya
following the government’s 2009 decision to slash the 16 per cent Value Added
Tax (VAT) levied on handset sales. The research was undertaken by Deloitte for
the GSMA as part of a larger global benchmarking study, the full data of which
will be published later this year.

By Team

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