Mobile Industry Asks for Tax Break

The GSM Association, which represents wireless carriers and phone makers, contends that high taxes on wireless services and devices have stunted adoption rates in developing nations.

A research report filed by the GSM Association on Monday submits that disproportionately high taxes on wireless services have prevented people in developing nations from adopting mobile devices.

According to the GSMA, an industry group representing wireless carriers and mobile device manufacturers, taxes accounted for more than 20 percent of the total cost of subscribing to wireless services in 16 of the 50 countries the group has classified with a "developing nation" status.

That translates into payment of more than $40 per year in overall wireless tax expenses, the group said.

Countries researched in the study included Brazil, China, Egypt, India, Iran, Nigeria, Poland, Russia, Turkey and Vietnam.

As part of its Millennium Goals, the United Nations has decreed that 50 percent of the worlds population should have access to modern communications by 2015.

According to GSMA, it is estimated that between 75 percent and 80 percent of the worlds population lives in areas already covered by mobile communications systems, yet only 25 percent of those people currently use such services.

"There is a great irony in the way governments tackle the digital divide," Rob Conway, chief executive of the GSMA, said in a statement. "They say they want more of their people to have access to communications and yet they impose high taxes on mobile phones and usage."

The industry group contends that unless governments reduce their tax rates and become more consumer-friendly, most citizens in the developing world will not be able to afford wireless services.

/zimages/1/28571.gifRead more here about columnist Edmund Ronalds observations of wireless applications in Japan.

The GSMA said that 19 of the countries researched in the study place additional taxes on top of standard sales taxes on mobile phone users.

Such costs, including a $13 average activation fee in the developing countries, continue to serve as a road block to adoption, the report said.

Tax experts agreed that without new reform, mobile services will continue to remain out of reach for the average consumers in many countries.

"Poorly designed special taxes on the sector will slow rollout and deny access to powerful tools in the fight against poverty to the very people who need those tools the most," Mohsen A. Khalil, director of the Global ICT Department of the World Bank, said in the report.

The GSMA study also found that black-market, or counterfeit, phones still make up a large proportion of the mobile devices being used in the developing world.

In 2004, an estimated 39 percent of all handsets sold in the 50 markets studied by the report were distributed via the black market, the report found.

The group estimated the loss to legitimate services and phone retailers at $2.7 billion in 2004.

The industry group highlighted the efforts of phone makers, such as Nokia, in creating new models built and priced specifically for developing nations as a potential driver of new growth in adoption, but said that reduced tax rates would likely improve sales of such devices.

If such "ultra low-cost" handsets were exempt from import duties and sales taxes, the GSMA study said, up to 930 million additional low-cost phones would be sold in the 50 markets covered by the study over the next five years.

The GSMA praised some nations, including India, for moving to cut their taxes on mobile services and devices.

By reducing import duties on handsets over the past three years, the group said that Indian officials have helped to boost the proportion of its population using mobile phones to more than 5 percent in 2004, compared to less than 1 percent in 2003.

The group estimates that if a government lowers sales taxes on mobile services by just one percentage point, it will boost the number of mobile phone users in its country by more than 2 percent between now and 2010.

Of the 50 countries reviewed in the GSMA study, Turkey recorded the highest rate of taxation of mobile communications with nearly 44 percent of the cost of owning and using a mobile phone, or $73 per year, made up of such fees.

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