Tax regimes that recognise mobile phones as a need not a luxury benefit all stakeholders

This report by the GSMA builds on the 2005 GSMA report, Tax and the Digital Divide, and extends the benchmark of taxes levied on the ownership and use of mobile phones to 101 countries, representing about 85% of the global population. This latest report analyses the impact of reducing/removing consumer taxes on mobile services through considering the impact of tax changes on:

• A reduction in the price charged to the end customer;
  
  
• The impact this change will have on mobile penetration and usage; and
  
  
• The subsequent impact on tax revenues and GDP. From a sample of 57 developing countries, the report finds that a 10% increase in mobile penetration leads to a 1.2% increase in the annual growth rate in GDP¹.
  
  

Mobile phones are revolutionising the lives of millions of people and will continue to be the primary means for the great majority to access voice, data and internet services. This report makes the case for addressing taxation policy and levels to support the extension of this essential franchise to the poorer sections of society.

Key findings

Based on analysis and modelling the following key findings are found in the report:

• Reducing mobile specific taxes and general consumer taxes such as VAT leads to substantial increases in mobile penetration and usage;
  
  
• A reduction in the price charged to the end customer;
  
  
• Increased penetration boosts economic activity. In developing countries a 10% increase in penetration leads to a 1.2% increase in the annual growth rate in GDP;
  
  
• Turkey levies the highest taxes on mobile consumers in our sample set, totalling 44% of each $ spent by consumers. This position is consistent with the last GSMA report on this issue;
  
  
• Taxation of mobile consumers in East Africa is almost twice the 17.4% global average, potentially limiting mobile expansion in the region and the associated benefits;
  
  
• 20 jurisdictions levy higher taxes on mobile consumers than fixed;
  
  
• A reduction in mobile specific taxation could approach revenue neutrality in 14 of these 16 countries, as reductions in government taxation revenue would be counterbalanced by greater VAT, corporation tax and economic growth;
  
  
• Case study evidence from Kenya suggests that cutting mobile specific taxes can have a revenue positive impact for the government in the medium term in countries where mobile penetration is still low;
  
  
• Of the countries surveyed, 16 still have mobile specific taxes. Such taxes are regressive in developing countries, in that they are proportionally greater on the poorer members of society who use mobile phones as their source of universal access; and
  
  
• On average, tax accounts for 24.8% of total handset costs and 45 countries (nearly half of those surveyed) impose specific import duties on handsets.
  
  

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Notes:
1. Following Waverman et al. (2005) a growth model following the Endogenous Growth approach is applied. This is a cross-section estimation of the relation between average GDP per capita growth over a period of time (1980 to 2003 in our case, as inWaverman at al. (2005)) and the initial level of GDP per capita, literacy rate at the beginning of the period as proxy for initial human capital, average investment as a proportion of GDP and average mobile phone penetration.

GDPpercapGrowth1980-2003 =a +ß1MobPen1996-2003 +ß2GDPpercap1980 +ß3I +ß4Literacy1980