Easing tax burden on mobile industry

Dhaka,  Mon,  26 June 2017
Published : 20 Jun 2017, 21:24:31
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Easing tax burden on mobile industry

T I M Nurul Kabir
Mobile telecom services have boosted productivity in the overall economy of Bangladesh. By facilitating efficient and cost effective ways to communicate and access information, the mobile technology has transformed the way economic activity is carried out across all sectors of the economy. 

Mobile technologies and services generated 6.2 per cent of gross domestic product (GDP) in 2015. This contribution is composed of a numbers of elements including wages, taxes and fees paid by operators, as well as business surplus; knock-on effect from the sectors that provide inputs into the supply chain of mobile goods and services; and finally, the productivity benefits that accrue throughout the economy from the use of mobile technology. 

Despite the sector's contribution to the economy, mobile industry has been subject to successive imposition of various tax and surcharges. Although mobile  services pay a great deal of general taxation, it is also subject to a significant amount of sector-specific taxation. 

REACHING OUT TO THE UNDERSERVED: 'Vision 2021' set forth by the government aims at developing Bangladesh into a resourceful and modern economy through efficient use of information and communication technology (ICT). Telecommunication & ICT development is given high priority under the government's Digital Bangladesh programme. The vision of Digital Bangladesh aims to utilise ICTs for poverty reduction at a proactive pace and to ensure transparent and responsive governance.

Mobile technology is the primary means by which a significant number of people communicate remotely with each other. So, mobile phone has provided the platform for reaching out to the underserved people. Mobile technology is empowering the disadvantaged groups by connecting underserved citizens with government and non-government service providers through internet and mobile phone-based systems.

Mobile technology has made way for individuals, companies and the government to innovate in new and unforeseen ways. Mobile phone has emerged as the most suitable channel for providing underserved people with access to education; healthcare; agricultural information about quality of seeds, market price etc, early disaster warning and so on.  Mobile phone is also providing previously unbanked population with access to financial services. 

SUPPORTING DIGITAL CONNECTIVITY: There is a consensus on what should be considered as the vehicle through which the vision of Digital Bangladesh is implemented. It is the Internet. Bangladesh mobile networks are far ahead of any other technology platform in providing access to Internet. 

Currently, over 6 million people are accessing the Internet in the country. After Mobile Network Operators (MNOs) launched 3G services in 2013, internet penetration grew by 22 per cent by the end of 2014. According to information provided by BTRC, out of 66.8 million active Internet subscribers in the country till Sept 2016, nearly 96 per cent are mobile users, which include 10 million smartphone users. The figures show the tremendous contribution made by the mobile telecom sector in achieving the vision of Digital Bangladesh.

COST OF MOBILE OWNERSHIP: Through significant investments by MNOs the mobile industry is playing a vital role in developing a broader mobile ecosystem. Over the last 20 years the MNOs have invested more than Tk 1.0 trillion  (one lakh crore). As of recent times, the industry has raised the unique SIM penetration level to 54 per cent. This leaves out 46 per cent of the population from enjoying the digital dividend in their life.

In terms of coverage 100 per cent of the population is now covered by network. MNOs have invested more than Tk 300 billion over the last three years and have brought 65 per cent of the population under 3G network coverage. However, by the end of 2016 only 18 per cent subscribers were using 3G services. One key reason for this low uptake is affordability.

Whilst the price of mobile services is influenced by many variables, taxation is one crucial factor. Despite the role of mobile telecom in supporting digital connectivity and the related benefit for social development and economic growth, tax treatment of the sector is not aligned to the objective of advancing connectivity.  

The Total Cost of Mobile Ownership (TCMO) includes expenditure on calls, SIM and data, as well as handset costs. Each of these cost elements is subject to taxation. In 2014, the taxes applied directly on mobile consumers accounted for 17.4 per cent of the TCMO over the course of a year. 

BURDEN OF SECTOR-SPECIFIC TAX: Despite the fact that Bangladesh has one of the lowest levels of Average Revenue per User (ARPU) in the world, uptake of mobile broadband remains low compared to its immediate neighbours. Taxes applied to MNOs and mobile consumers influence the affordability of services and investment which hinder development and take-up of mobile broadband.  

Imposing increased duties on handsets, mobile telecom infrastructure and further increase to SIM tax goes counter to the government's digital ambition to make telecom and data services more affordable.

Sector-specific taxes paid by consumers are not equitable, as the burden tends to fall disproportionately on those with lower incomes. Imposing 15 per cent VAT of SIM tax is going to make it even harder for the 46 per cent unconnected people to be part of the digital revolution simply because they will find it unaffordable to get a SIM connection as they are relatively less privileged. 

If we are to implement the government policy that focuses on connecting the unconnected to achieve 100 per cent adoption of advance telecommunications services, a complete withdrawal of SIM tax and SIM replacement tax is very important. Facts show that there is a compelling case in favour of doing so. 

If we look back to 2011 when SIM tax was set at Tk 600, contribution of the mobile industry to GDP was 3.2 per cent. In 2013 when SIM tax was brought down to Tk 300, the industry's GDP contribution rose up to 4.9 per cent. And in 2015, when the SIM tax was brought down to Tk 100, the industry contributed 6.2 per cent of the GDP.

TAXES ON EQUIPMENT & INFRASTRUCTURE: While MNOs are yet to break-even on their 3G investment, they are getting prepared for 4G. Notably only one operator is making profit, while others are struggling. Under these circumstances, increased infrastructure costs will make profitability for operations untenable. Raising import duty for telecom equipment from 5 to 10 per cent is going to add to the burden on the industry in view of the future investment for introducing 4G technology in the country.

Additional tax imposed on the import of mobile handsets, especially smartphones, is also 'untimely' because the local handset manufacturing industry is not yet ready to reap the benefit. With 4G enabled handset penetration of only 4 per cent, raising import duty on mobile handsets will make for an even bleaker future for the industry. 

DISCRIMINATORY CORPORATE TAX: There is also discrimination when it comes to corporate tax. Telecom companies have to pay 10 per cent higher corporate tax than other companies. While other industries pay 30-35 per cent corporate tax depending on whether they are publicly listed or not, the corporate tax on telecom sector set at 45 per cent is a major barrier to enticing foreign investment in this sector.

Out of every Tk100 worth revenue the mobile industry already contributes Tk Tk 47 taka to the government exchequer. 45 per cent corporate tax rate leaves little room for the industry to invest in the country's digital future.

LONG-TERM ECONOMIC INTEREST: If enabling environment is created for the operators according to "Economic Impact: Bangladesh Mobile Industry- GSMA" published in 2017, the mobile industry can contribute up to $17bn and create direct or indirect job opportunity for 820 thousand people in 2020. 

The imposition of increased duties on handsets, mobile telecom infrastructure and further increase to SIM tax is practically counterproductive to the government's vision of digital Bangladesh. It is unfortunate that the government is once again inclined to sacrifice higher long-term benefits for lower short-term immediacies. 

It is in the country's long term economic interest to make mobile and mobile broadband more affordable to ordinary consumers to achieve the goals of digital Bangladesh and graduate the country to middle income nation by 2021. 



The writer is business & technology policy analyst and former Sr. Vice President, DCCI & BASIS. 

timnkabir@gmail.com

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