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Obsession with taxing the mobile telecom sector

Recent tax proposals must be reconsidered or Digital Bangladesh will remain a pipedream

Tahani Iqbal
THERE is an obsession in Bangladesh with taxing mobile telecom services.
The resulting burden on the sector trickles down to the consumer, hampers growth and draws the country further away from the goals of Digital Bangladesh.
Mobile data services are a luxury
As per the UN Broadband Commission, entry-level broadband services should be made affordable in developing countries at less than two percent of monthly gross national income (GNI) per capita by 2025.
It is, therefore, no surprise that LIRNEasia's nationally-representative AfterAccess survey found that only 13 percent of Bangladeshis (between 15-65 years) had ever used the internet.
One-third of these internet users (between 15-65 years) cited cost of data as a barrier to further use.
SIM, smartphone and service taxes will discourage mobile use and limit choice
The government's recent tax proposal to increase supplementary duty (SD) for mobile services to 10 percent will mean that the overall tax burden on consumers rises to 16.67 percent (from 11.35 percent) for data services and 27.77 percent (from 21.96 percent) for voice and other mobile services.
The government also proposes to increase taxes on SIMs and imported smartphones.
SIM tax is a direct tax on access, with negative impacts on first-time mobile users who are likely to be poor consumers. Only Pakistan, Turkey and a few other African countries impose SIM tax. In Bangladesh, this tax has largely been borne by mobile service providers in an effort to bring more people online.
Increasing the charge by 100 percent to Tk 200 will cripple operators if they continue to pick up the tab. If passed on to consumers, this tax will only serve to further depress mobile service adoption among the poor.
Increasing SD on imported smartphones by 15 percent, as proposed, will bring taxes on imported devices to over 50 percent.
In contrast, tax on locally assembled and locally manufactured phones are 17 percent and 5 percent respectively. Even with supposedly cheaper locally made handsets available in the market, 35 percent of Bangladeshis (15-65 years) told LIRNEasia that they are unable to afford a device.
While we commend the government's efforts to encourage local manufacturing, taxing consumer choice does nothing to improve smartphone ownership in Bangladesh.
Turnover tax and VAT discrepancies are detrimental to industry sustainability
The proposal to increase turnover tax from 0.75 percent to 2 percent will be the nail in the coffin for mobile service providers who are already reeling under financial pressure.
Only Grameenphone has made consistent profits in the past;
others are barely breaking even. And state-owned TeleTalk will be the worst victim of this measure.
The discrepancy on VAT rebates is another issue that needs to be remedied immediately. Although VAT on data services is proposed to fall
Digital Bangladesh will remain a dream
The government's Digital Bangladesh initiative aims to ensure "Equitable Access for AH" by 2021. One of the strategic priorities is to revisit taxation policy for the mobile sector to
pursue such tax policy, which is grossly counterproductive to wider economic and social development goals.
If the intent is to uplift and grow the sector and ensure that millions more Bangladeshi citizens are able to access digital
to 5 percent (from 7.5 percent), mobile operators will have no relief as they must continue to absorb VAT as a cost.
Rebates can only be claimed on 15 percent VAT as per the VAT and Supplementary Duty Act 2012 (repealing VAT Act 1991) to be implemented from July 1, 2019.
The government should not expect fresh investments in the mobile networks to improve quality of services, extend coverage and offer capital-intensive 5G connectivity, under these conditions.
incentivise investments and expand networks and access to services across the country. This will be vital to mobile service growth in Bangladesh.
The current treatment of the mobile sector is as though it is a demerit good, with SIM taxes levied to curb the expansion of the sector.
This is a far cry from reality, where mobile connectivity and use are recognised as critical enablers to development. It is then hard to imagine why a progressive government would
services, then the tax proposals mentioned above need to be reconsidered.
The poorest consumers, for whom mobile access could deliver the greatest benefits, are likely to be most negatively affected by these proposals. Ill-thought-out tax policies will hamper network investments and widen connectivity gaps such that an inclusive Digital Bangladesh will remain a pipedream.
The writer is a senior research manager at LIRNEasia.