Mobile phone group urges governments to lower taxes

High taxes are holding back mobile phone usage in developing countries, the GSM Association says.

Governments in developing countries should lower import duties on mobile handsets and slash service taxes to ensure they aren't impeding social and economic growth, and further widening the digital divide, the GSM (Global System for Mobile Communications) Association said Monday.

Such taxes have already made mobile communications unaffordable for hundreds of millions of people throughout the developing world, according to the association (GSMA), a trade group that promotes the interests of GSM mobile network operators around the world.

Taxes represent more than 20 per cent of the total cost of using a mobile phone in 16 of the 50 developing countries covered in a study commissioned by GSMA. In 14 of the developing countries, the average mobile phone user pays more than US$40 per year in taxes on handsets and mobile services.

In some countries, such as parts of India and China, US$40 represents more than a month's wages. More specifically, the average manufacturing worker in Thailand earns US$138 per month, while China is lower at just US$98, according to figures compiled by the Economist.

Lowering taxes would increase the number of mobile phone users in developing countries, thereby bringing in more tax revenues over time, said the GSMA.

Part of the trouble with the taxes is they have helped create a vibrant black market in mobile phones, the association said. In 2004, over a third of all handsets sold in developing countries were through the black market, a loss of US$2.7 billion in tax revenue in the 50 countries examined.

The GSMA highlighted Turkey as the highest taxer of mobile communications among the 50 countries in the study. Nearly 44 per cent of the cost of owning and using a mobile phone in Turkey is taxes, an average of US$73 per user each year, the association said.

One country that has already reduced import duties on mobile phones is India, a measure that has helped boost the proportion of its mobile phone users to 5 per cent of the population from 1 per cent three years ago, GSMA said.

To combat the high costs associated with mobile communications in developing countries, the GSMA has been working with mobile phone makers to create a new category of ultra-low cost phones that will sell for less than US$30 each wholesale. But import duties and sales taxes in some countries could still cause the retail price to be much higher, the association said.

Dropping all taxes on ultra-low cost phones could mean sales of up to 930 million handsets over the next five years in the 50 countries studied, the association said, which could eventually increase tax revenues for governments in those countries.

Members of the GSMA include 680 mobile operators and 150 manufacturers, providing mobile phones and service to nearly 1.47 billion users in 210 countries, according to the association's Web site.

GSMA commissioned Pyramid Research and Frontier Economics, with support from Deloitte & Touche and Tarifica (a unit of Access Intelligence), to conduct the study, which it said is the first to examine the impact of taxes on the affordability of owning a mobile phone in a large number of developing countries.

Join the newsletter!

Error: Please check your email address.

More about Deloitte & TouchePyramid Research

Show Comments