Update: Taxation on Mobile
Network Operators and ICT
Development
CANTO Conference & Exhibition
22nd – 25th July, 2012 – Miami
Julian Wilkins – Director, Telecoms Public Policy
Taxation on MNOs and ICT Development
CANTO Theme: Accelerating Broadband Experience in
the Caribbean - transforming the way we live
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ICT development – ITU; GSMA; Ericsson;
Taxation on MNOs and economic development –
relationships – special taxes;
Indirect impact of ICT taxation;
Conclusions.
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ICT Development (2)
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Empirical evidence of diffusion of telecoms services
has a spill-over effect on economic growth;
A tax which slows down diffusion of telecoms
services defers the arrival of benefits;
This tax may actually reduce tax revenues by
causing the economy to grow more slowly.
(Source: ITU Taxing telecommunications/ICT Services – August 2011)
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ICT Development (3)
Recent IDB econometric study specifically for Latin
American and the Caribbean region:
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Estimated 10% in market penetration of
Broadband services increased GDP by 3.2% on
average and improves productivity by 2.6%
Source: Garcia-Zaballos, A / Lopez-Rivas, R: Governmental control on socioeconomic impact of broadband in LAC countries, working paper.
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ICT Development (4)
Recent report conducted by Ericsson, Arthur d. Little
and Chalmers University in 33 OECD countries:
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Quantifies the isolated impact of Broadband speed,
showing that doubling the Broadband speed for an
economy increases GDP by 0.3% ;
Positive effects come from automated and simplified
processes, increased productivity as well as better access to
basic services such as education and health;
Direct, induced and indirect effects of Broadband speed.
Source: Ericsson – Need for speed (September, 2011)
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Special taxation measures considered or
introduced in the Caribbean:
• Jamaica: special tax of 25% GCT on calls and handsets as opposed to
the ordinary GCT of 17.5% (being reduced to 16.5%);
• Anguilla: in November 2010, the Government implemented a 7% levy
on telecoms providers;
• Belize: a special tax on telecom services of 19% but no tax on BB;
• Barbados: in January 2011, the Minister of Finance wrote to Mobile
Operators to implement a B$3.00 tax on all post-paid and pre-paid
mobile phones - not implemented;
• Grenada: in 2009, the Government approved a law to introduce a tax
of 20% on mobile phone services. However, this was not implemented.
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Jamaica (4) – implemented July 15th - Summary
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US7.5c tax on all incoming international calls to mobiles;
J$0.05 tax on all calls originating and terminating on
Jamaican fixed networks;
J$0.40 tax on all other calls originating from Jamaican
networks (i.e. outbound domestic and international fixed
and mobile);
Free minutes will be exempt from the tax subject to the
stipulation that only up to 30% of the total time will benefit
from such exemption;
Regional impact: other Digicel Islands have been forced to
remove Jamaica from all plans and bundles effective 15th
July, although endeavouring to come back with an
alternative.
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International Monetary Fund
The recent IMF country report on the Philippines clearly encourages the Government to
introduce additional taxes on mobile operators.
‘…..given the volume and the increase in the usage it (taxation) can be a
significant source of revenue with no or little distortionary effects’ (IMF country report no
12/60, p38)
‘Given the fact that tax can be collected by a few telecom operators at the time
of service or access is provided, the excise taxation of telecommunications services makes
sense for the tax authorities’ (IMF country report No 12/60, p39)
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Dr. Hamadoun Toure Secretary General ITU – strong advocate of not introducing special
taxes on telecoms
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International Monetary Fund (2)
The IMF has encouraged Governments to place a
small excise tax on the phone usage:
But rejected by the Philippines who believed it was
counterproductive to their ICT agenda.
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MNO and economic development
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GSMA studies indicate that mobile telecoms taxes were
disproportionately high in many developing countries;
Additional taxation forces the poorest customers off
the network. In other words this directly conflicts with
USO objectives;
Adopting highly distorting taxation policies can
negatively impact the development of mobile
Broadband;
Even small cuts in taxes may attract more mobile users;
Telecoms – high capacity to stimulate growth.
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European Commission (EC)
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EC requested Hungary to abolish its ‘special tax’
imposed on telecom operators in October 2010;
EC consider illegal under EU telecoms rules as
revenue is used for Governments central budget
and not meeting the specific costs of regulating the
sector;
This may be a challenge for some parts of the
Caribbean region where ‘special taxes’ end up in a
central Government fund.
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Indirect impact of ICT Taxation –
ITU Proposition:
Tax on telecoms
Roll services are delayed
Direct effect on national income – includes ICT output
Spill over effect – telecom services used in
many other sectors
Direct and indirect consequences
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GSMA
“Governments, particularly in developing countries,
could consider focusing their taxation strategies to
increase economic development rather than adopt
policies that may create barriers to more people
owning and using a mobile phone.”
Source: GSMA - Global Mobile Tax review – November 2011
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GSMA
“we found clear policy inconsistencies between
regulations aimed at developing the ICT sector through
investment incentives and a culture where ICT firms are
perceived as ‘cash cows’ thus taxes are levied.”
Source: GSMA - The impact of taxation on the development of the mobile broadband sector – March 2012
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Conclusions
• High tax rates or tax increase for the sake of revenue
generation may be counterproductive;
• Taxes are particularly damaging at the margin – and force off
the network the poorest people in society. The very people
Universal Service is aimed at. Extra taxation conflicts with
USO;
• From empirical evidence, ITU studies show additional special
taxes have direct and indirect consequences on a country’s
development;
• ICT development is placed at risk in our region when the
uptake of wireless broadband services is threatened by
increases in taxation.
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Accelerating Broadband Experience in the Caribbean transforming the way we live
Taxation article – Page 20 in the CANCION magazine
Andrew Gorton’s presentation
How Governments have made Broadband network rollout
possible
Thank you for listening!
julian.wilkins@digicelgroup.com
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