April heralds the start of the new fiscal year in many countries around the world, when various new tax rules come into place.
One example of a country that has been grappling with new taxes is Romania, where the so-called greed tax ordinance was implemented earlier in the year: it targets bank assets, energy companies and mobile operators. Romanian mobile subscribers will see bills go up as a result of the 3 per cent tax on all telecom operators’ turnover.
This is just the latest in a longer-term trend on mobile sector taxation.
The mobile sector continues to see further taxes added on by governments in an effort to maximise fiscal revenues. Governments across the world have introduced or increased 120 taxes specific to the sector since 2011. As of 2017, 1.5 billion mobile subscribers in 60 countries were subject to some form of additional taxation on top of general VAT or sales tax: that’s almost 30 per cent of mobile subscribers worldwide.
While this might seem like abstract data, there are real consequences. Here are some of the more worrying developments in mobile taxation (you can find more in our recent Rethinking Mobile Taxation to Improve Connectivity report).
Uganda: social media tax
In 2018, the government introduced a tax of UGX200 ($0.05) to use many online platforms including WhatsApp and Facebook. The Ugandan regulator recently reported that, as a result, internet subscriptions fell by 2.5 million in the three months after the tax was introduced.
Sri Lanka: tower tax
Original plans for a tower tax in late 2017 included an LKR200,000 ($1,144) tax per tower every month. These plans were watered down by the time the tax was implemented in January 2019: the monthly rate became the yearly rate. Nevertheless, taxing towers will no doubt reduce incentives to roll out networks.
Turkey: activation taxes
Getting access to a new phone connection has been difficult for a while now: consumers in Turkey pay three different charges before the first MB of data is downloaded. But these charges, the special communication tax, wireless licence fee and wireless usage fee, are inflation-linked and now add up to TRY98 ($17.22) just to get started for the year. It’s no wonder consumer taxes account for more than 60 per cent of the cost of owning a mobile in Turkey (and on top of that there’s a number of operator taxes there including a 15 per cent revenue share).
These additional (and complicated) taxes aren’t good for developing a mobile market. Need proof?
Since taxes increase the price of owning and using a mobile phone, fewer people are able to afford and use mobile internet services. Charting out the results, we see that consumers in high-tax countries (with red dots in the chart, below, click to enlarge) are charged more than 3.5 per cent of their income in taxes on mobile. In these same countries, mobile internet penetration never exceeds 30 per cent.
Where debt levels are higher, governments reach for additional tax payments on the mobile sector to try and fill the fiscal gap. Where that debt is due to be paid back soon, governments’ requirements are even more pressing. And mobile transactions of all types are tempting to tax: the International Labour Organisation estimates 2 billion of the world’s employed population are in the informal economy, with 93 per cent of these workers in emerging and developing countries. Collecting taxes from a significant informal economy is difficult. On the other hand, mobile transactions such as buying SIM cards, handsets, and prepaid top-ups can be identified fairly easily, and therefore are easier to tax.
But, as much as this strategy might be popular or easy, it’s a mistake for two key reasons.
Taxable base decreases
Higher taxes means lower take-up and therefore a decrease in the taxable base, the number of people you are able to tax. So gains by governments in terms of increasing tax rates can be eroded by the lower number of people using mobile.
Mobile services can help in formalising the overall economy
Person-to-government (P2G) payments using mobile money can be used to collect general taxes from citizens; school fees; health payments; and other official payments, and therefore increase the taxable base. P2G payments are now available in over 30 markets.
Inevitably, the debate on mobile taxation will continue with the short-term fiscal requirements of governments being pitted against longer-term sector and economic development.
At the same time, governments are developing ambitious digital economy plans. Mobile operators are being asked to simultaneously take on the burden of generating significant tax revenues and invest heavily in infrastructure. Maintaining both roles might turn out to be unsustainable.
– Mayuran Sivakumaran – senior economist, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.Subscribe to our daily newsletter Back