Nearshore Americas

Study: High Taxation Hinders ICT Sector Growth in LatAm


High taxes imposed on cellular services is hindering economic growth and up-take of 3G mobile broadband services in several Latin American countries, says a study jointly conducted by GSMA and a non-profit organization AHCIET.

The mobile industry, according to the report, contributed an estimated $177 billion to the economies of Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Peru and Uruguay, representing 3.5 per cent of the region’s GDP.

The GSMA is an association of mobile operators and related companies devoted to supporting the standardizing deployment and promotion of the GSM mobile telephone system.

The association has urged the LATAM countries to reduce taxes to prevent its negative impact on the ongoing development of the mobile industry and the adoption of innovative services in the region.

“Mobile is an important contributor to economic success and we have clearly seen that when countries have lowered mobile-specific taxes, it encourages greater usage, boosting economic contribution, consumer benefits and government tax receipts,” said Tom Philips, chief government and regulatory affairs officer, GSMA.

The association said its report was based on the study conducted in nine countries in the region.

“Taxes on the ICT industry act as barriers to connectivity and restricts investment, something which proves to be especially harmful for those on lower incomes,” said Pablo Bello, General Secretary, AHCIET.

Further, the GSMA study indicates that mobile operators across the nine countries studied in its report, employ more than 107,000 people, with approximately 890,000 people in employment across the wider mobile ecosystem in the region.

The report highlights a number of cases where mobile telephony is taxed more heavily than other sectors of the economy. Brazil and Colombia, the report says, impose higher sales taxes on mobile consumers compared to other sectors. In Brazil, consumer taxes account for more than a third of call charges.

Additional luxury taxes are also imposed on mobile consumption in Argentina, Mexico and Panama. Consumers in Argentina also see high taxation on handsets, which can make up more than half of the cost of owning a mobile, according to the report.

In addition to corporation taxes, mobile operators in some countries are subject to license fees, turnover taxes and other government-mandated fees such as property taxes. In 2011, mobile operators and other players across the mobile ecosystem in Latin America paid almost US$54 billion to national governments in taxes and regulatory fees, an increase of 30 per cent compared to $42 billion in 2008.

The GSMA study shows that the penetration and usage of mobile services in Ecuador and Uruguay dramatically increased following the removal of mobile-specific taxes in 2007 and 2008. Conversely, in Mexico and Panama, where taxation has recently increased, penetration and usage have both contracted.

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“Policymakers and governments across Latin America need to recognize the potential of the mobile telecoms industry and the harmful impact of excessive taxes,” continued Philips. “A recent change in legislation implemented in Brazil reduced the taxation burden on M2M services. Such moves represent a positive step for the industry and further action to remove these discriminatory taxes could spur the development of the mobile industry, benefiting consumers and businesses and boosting the region’s economy.”

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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