A Telecom Advisory Services (TAS) report, delivered in conjunction with the GSM Association (GSMA), reveals how mobile sector-specific taxation is impacting on the development and deployment of mobile broadband in developing countries.

The study finds that a reduction in special taxes applied to the telecommunications sectors in countries with different taxation approaches, such as Brazil, Mexico, Bangladesh and S. Africa, will translate into higher mobile broadband service adoption and more wealth creation, reflected in additional GDP growth. 

The report notes that inconsistencies currently exist in many developing countries, between the levels of taxation levied against the mobile industry and the reliance each of these countries places on mobile broadband to achieve broadband penetration goals. With a widespread absence of fixed infrastructure in these markets, mobile broadband will become a key social and economic development lever, driving internet connectivity and bridging the existing digital divide. 

The report reveals that every dollar reduced in taxes across Brazil, Mexico, Bangladesh and S. Africa will generate additional GDP ranging between $1.40 to $12.60 through enhanced broadband uptake. Despite this, however, all four countries have implemented a taxation approach that actively reduces mobile broadband penetration by putting an economic burden on the purchase of handsets and services. 

“The findings from today’s report clearly show how distortive taxation approaches in some countries can increase the Total Cost of Mobile Ownership (TCMO), negatively impacting development of mobile broadband,” said Tom Phillips, chief government and regulatory affairs Officer at the GSMA. “This report highlights the inconsistencies between regulations aimed at developing ICT sectors, and policies that single out the services they deliver as ‘cash cows’ upon which taxes are levied.” 

The study states that at least 27 countries around the globe have special taxes focused on telecommunications services. It notes that while it is imperative that governments apply taxes to finance spending and generate externalities in sectors where private investment is lacking, these taxation models are often extremely inefficient. Fiscal policies that apply a special tax to the telecommunications sector cause distortions that crowd out private spending and ultimately diminish welfare, the report claims.

“It is crucial that policy makers in these countries understand the impact mobile broadband will have on wealth creation, and align their ICT development strategies to sustain its ongoing growth”, says Phillips.