Taxes and the Digital Divide

GSM Association (GSMA) says that taxation acts as a barrier to making mobile
phones affordable and this is holding back economic growth and social
development in many countries. In a study, it found out the following.

Taxes are disproportionately high in many developing countries

• In 16 of the 50 developing countries in the study, taxes on mobile phones
  and services are more than 20 percent of the total cost of ownership. In
  these 16 countries, which are home to hundreds of millions of people, the
  annual cost of taxes ranges from an average of $24 to $179 per mobile phone
  user.
• Nineteen countries even levy additional taxes, on top of standard sales
  taxes, on mobile phone users. Some of these additional taxes are telecom
  specific, such as service activation taxes. The special taxes average $13
  per annum per subscriber.

The black market in handsets booms as users try to avoid
high taxes

• 39 percent of all handsets sold in the 50 countries in
  the study in 2004 were via the black market, representing a loss of $2.7
  billion in tax revenues.

Cutting taxes on mobile handsets and services attracts new
users

• If low-cost handsets were exempted from import
  duties/sales taxes, up to 930 million additional low-cost handsets could be
  sold by 2010 in the 50 countries in the study, increasing the mobile phone
  penetration and even total tax revenues.

• If a government lowered taxes on mobile usage by one
  percentage point, the number of mobile users there could boost by more than
  2 percent by 2010.

• Eliminating the special taxes could boost the numbers of
  mobile users in the 19 affected countries by 34 million (or 8 percent) by
  2010.

• The removal of all sales and customs taxes on mobile
  handsets and services could prompt an increase in mobile penetration of up
  to 20 percentage points, according to an analysis by London Business School.

Lower taxes mean greater revenue opportunities for
governments in the long term

• Cutting taxes on handsets would attract new mobile users.
  If taxes on usage remained the same, each new user could yield additional
  service tax revenues of US$25 per year.

Source: GSMA