Finding the balance on taxes

Industry wants an attractive taxation environment before it will invest in a country
Mohamed Bubashait, director general at Bahrain TRA
Mohamed Bubashait, director general at Bahrain TRA
David Taverner, head of Digital Inclusion at GSMA
David Taverner, head of Digital Inclusion at GSMA

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Governments are aware of the importance of developing a strong telecommunications sector to improve their economy. Telecommunications plays a major role to develop countries and one of the targets in the Millennium Development Goals of the United Nations is to increase the access of people in both fixed-line and mobile phone telecommunications, measured in terms of teledensity. However, emerging markets are facing different challenges when offering connectivity to remote and rural areas.

Countries need to ensure a sustainable and attractive environment to operators to promote the investment in these specific areas. However, some governments are the ones providing the initial investment linked to the infrastructure, acquiring a large debt, but after it the support of the private sector is needed to maximise the growth in the sector after this first investment in the infrastructure.

Finding the balance between what the public and the private sector demands is a hard task, as some key players discussed during the ITU Telecoms World Conference, held in Doha, Qatar last month. Omobola Johnson, minister of Communication Technology of Nigeria, speaking in one of the panels said that governments are facing a tremendous challenge when deciding what to tax to get enough return to pay their debts related to telecoms and also promote a healthy business environment.

In order to promote the investment, Nigeria is licensing seven infrastructure companies. “We try to ensure that we have better national coverage. There are several billions of dollars required, we are looking at investors from the major telcos and vendors to drive this particular infrastructure,” said Johson to CommsMEA on the sidelines of the ITU conference.

“Operators look for areas where they can make profit after their investments and, in order to achieve that, they need a sustainable environment where the government of the country boost investment by applying a reasonable taxation system,” said David Taverner, head of Digital Inclusion at GSMA.

According to Taverner, high mobile taxes have been implemented in many countries in the region, including Jordan, Tunisia, Turkey, Nigeria, Ghana and Tanzania. “Not only do such taxes sap operators of the necessary cash flow for making network and technology investments but importantly these taxes also impose a burden on consumers by increasing the cost of mobile ownership and limiting consumption,” he said.

John Nasasira, minister for Information and Communications Technology of the Republic of Uganda, said that operators might not answer to the investment call that the government has made as they will not get many profit on that area. Nasasira comments that the country has invested in the infrastructure of several remote and rural areas but operators have not carried in investing on these areas.

The ITU calls for a sustainable model, where operators can make profit, and government does not lose money by supporting the private sector.

“Taxation is not the problem per se, as mobile operators are willing to pay their appropriate share, the issue is sector specific taxes. Operators pay a variety of mobile-specific taxes and fees across the region, examples include corporate taxes (which often exceed rates paid by businesses in other sectors), specific taxes on mobile operators, customs duties on network equipment, regulatory fees including licensing fees, and universal service contributions. This is without considering the costs of acquiring spectrum, either through auctions or other procedures, which constitute a significant additional expenditure for operators,” commented Taverner.

A country applying a tax of 1% on top of the final revenue of the operator is Bahrain. The Bahrain TRA claims that there is no corporate or income taxation in Bahrain or any VAT.

“Taxation is therefore not a factor in terms of restraining operator growth in Bahrain or distorting consumer demand for telecommunications services,” said Mohamed Bubashait, director general at Bahrain TRA.

“The Bahrain government benefits directly from the telecoms sector in a number of ways, for example as a shareholder in Batelco (and hence as a recipient of dividends). In addition, the TRA is funded through licence and other fees payable by the telecoms operators (including fees paid for scarce spectrum), with any surplus being transferred to the Ministry of Finance,” commented Bubashait.

The mobile industry is in constant communication with governments on this issue and in 2014, a GSMA/Deloitte report has shown that if countries reduced mobile-specific taxes by approximately 6%, tax revenues would return to 2013 levels by between 2016 and 2020.

“Policy makers must be careful not to hinder mobile growth potential with polices that maximise near-term tax revenues at the expense of medium-term growth and development. A phased programme of tax harmonisation can offer governments the opportunity to benefit from a stronger economic contribution from mobile whilst limiting the short-run fiscal costs of such harmonisation,” added Taverner.

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