Mobile sector taxation_ economic impact

1. Mohammad Tamjeed Siraj
Aug 2018
Mobile Sector Taxation: Economic Impact &
recommendations for Developing Economy

2. Mobile Sector is growing But Digital Divide still remains
Source: GSMA
Intelligence
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017 2018
Mobile penetration across regions (unique subscribers % of total population)
Asia Pacific
European Union
Latin America
Northern
America Middle
East
Sub-Saharan
Africa Developing nations have seen
substantial growthin mobile
access in the past 10 years but
are still trailing developed
economies.

3. Despite rapid growth in Mobile Broadband, a large number of
population can’t get its benefit
•
•
•
Source: GSMA Intelligence
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017 2018
Market penetration of mobile broadband capable
connections
Asia Pacific
European Union
Latin America
Northern America
Middle East
Sub-Saharan Africa
Though the Broadband Network growth
in Developing countries are Noticeable,
however, a large porting of the whole
population can not get benefit of this,
due to the fact that this service is not
affordable to them

4. Mobile contribution to economic growth, employment and
public funding

5. Future outlook of economic contribution of Mobile Sector

6. Wider Economic Growth
Increase ability to
communicateinformation
and spread news
Undermine
monopoly power and
encourage competition
Reduce search costs
Mobile and mobile
broadbandreduce
market friction
Reduce transaction costs
Help employers find
workers (and viceversa)
Reduce information
asymmetries
Improve access to credit
markets
Help match buyers
and sellers
The more people who join mobile networks, the greater the benefits realised through reduced market friction.
Source: GSMA & Deloitte, (2014). Mobile
taxes and fees: A toolkit of principles and
evidence.

7. Barrier of getting Economic benefit of Mobile Communication
and Broadband
• Affordability of possessing handset
• Tax burden on service consumption
• Digital Literacy
• Lack of awareness
• Lack Local contents

8. Taxation on Mobile Sector: An easy way to generate Govt.
revenue
• Due to heavy investment, Govt. eyes on Mobile Industry as large source
of Revenue collection
• In many developing countries, high Tax burden imposed on Telecom
Sector
• Though, Govt. can generate revenue, but it deprive a large section of
population geting the benefit of Mobile communication
• In, Bangladesh, around 50% of the revenue of Mobile industry goes to
Govt. exchequer in different forms of Taxes and regulatory fee

9. Impact of Mobile Tax
1. Taxation increases the price of mobile services
2. Price rises decrease consumer demand and operator revenues
3. Operator revenues directly affect employment and investment
4. Changes in mobile sector performance affect the wider economy
5. Lower taxation can have wide-ranging economic benefits

10. Dynamics of Economic impact of Mobile Taxation
Rebalanced
mobile taxation
Price of mobile
services
Consumer
demand
Operator
revenues
Infrastructure
investment
Coverage and
quality of mobile
services
Productivity,
investment and
employment
Economic
growth
Higher tax
revenues
Price elasticity of demand
Economic multiplier effect
Pass-through rates

11. Taxes on profits instead of revenues: An Example how it
encourage investment without compromising Govt. interest
Example: taxes on profits vs taxes on revenues
Consider two possible tax regimes:
 A 20% tax on profits
 A 10% tax onrevenues
What impact will this tax have on investment
incentives for a firm that makes $100million in
revenues, and has operating costs of $50million?
Taxation affects mobile operators’incentive
to invest.
Taxing operator profits is less distortive
than taxing revenues:
 Revenue taxes limit investment
capacity; operators that invest in
network infrastructure and service
improvements pay the same tax as
those that do not invest.
 A lack of investment in mobilereduces
growth and productivity.
 In contrast, taxes on profits provide
incentives for investment by reducing
the tax payments for operators that
invest.
Invest? Tax on revenues Tax on profits
No
investment
10% x $100m
$10 million paid in
taxes
20% x (100m-50m)
$10 million paid in taxes
$25 million
investment
10% x $100m
$10 million paid in
taxes
20% x (100m-50m-25m)
$5 million paid in taxes
Taxes on profits provide better incentives for investment

12. Principle to Follow Taxation for Mobile Sector
A lack of transparency in taxation systems may
deter investors and increase enforcement costs for
the government.
The tax and regulatory system should be
simple, stable and enforceable
Taxation alters incentives for production and
consumption. Economic distortions will generally
be minimised where the burden of taxation is
spread evenly across the economy.
Taxation should be broad-based
Taxes on profits are widely accepted to be less distortive
than taxes on total revenues. Taxes on operators’ total
revenues reduce incentives for investment in
infrastructure and quality of service improvements.
Incentives for competition and investment
should be unaffected
Just as the introduction or increase in taxation is designed to
address negative externalities from activities like tobacco
consumption, taxation policy should be appropriately applied to
encourage sectors that create positive externalities in thewider
economy.
Taxation should account for sector and product
externalities
Certain taxes lead to a disproportionate burden on poorest
consumers and risk excluding them from the benefits of
digital and financial inclusion. Mobile has expanded from a
luxury good to being a fundamental tool in areas ranging
from agriculture to health.
Taxes should not be regressive
5 Principle recommendations:

13. Thank you