GSMA and AHCIET Studies Highlight How Lowering Taxation on Telecoms Could Benefit Latin American Economy

- High Taxes Hinder Economic Growth and Take-up of 3G Mobile Broadband Services

LONDON, Dec. 10, 2012 /PRNewswire/ -- Today  the GSMA and AHCIET released findings from respective reports 'Mobile Telephony and Taxation in Latin America' and 'Taxation and Telecommunications in Latin America', both undertaken by Deloitte, showing that lowering taxation on telecoms would benefit the Latin American economy.

The GSMA's study highlights that the mobile industry contributed an estimated $177 billion USD[1] 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 study also indicated, however, that some countries in the region suffer from high mobile-specific taxes which threaten the ongoing development of the mobile industry and the take-up of innovative services.

"Higher taxes on the mobile industry hinder the adoption of new services, such as 3G mobile broadband and M2M services, and mobile usage generally," said Tom Philips, Chief Government and Regulatory Affairs Officer, GSMA. "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."

According to the results of the 11-country AHCIET report, in addition to the GDP generated by consumer payments for information and communications technology (ICT) devices and services, ICT network operations generate expenditure within each Latin American economy, through operator investments and payments to the wider ecosystem. These activities create added value, contributing to a country's GDP throughout the entire ecosystem.

"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.

Economic and Social Impact of Mobile Telephony and ICT

Independently, the reports show that, in addition to the GDP contribution, people across Latin America enjoyed intangible benefits delivered through mobile connectivity and ICT initiatives for communications, education, health and social inclusion. 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.

However, despite these positive socio-economic contributions, both consumers and mobile and ICT operators in Latin America face significant taxation burdens. The reports highlight a number of cases where mobile telephony is taxed more heavily than other sectors of the economy; for example, it was shown in the GSMA report that Brazil and Colombia impose higher sales taxes upon mobile consumers compared to other sectors, with consumer taxes accounting for more than a third of call charges in Brazil. 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.

The Effect of Sector-specific Taxation

Substantial taxation raises the cost of mobile access and hinders adoption and use by consumers. 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 $54 billion USD to national governments in taxes and regulatory fees, an increase of 30 per cent compared to $42 billion USD 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.

"Policymakers and governments across Latin America need to recognise 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."

AHCIET's Bello added, "Given Latin America's need for greater mobile broadband and ICT development, supportive taxation policies can be an effective tool to stimulate both demand for mobile and ICT services and promote investment. As such, governments should account for the cost of foregone benefits when evaluating taxes on mobile and ICT consumers and operators, and could consider targeted tax reductions to achieve their broadband policy objectives."

Notes to Editors:

[1] USD 177 billion is the estimated supply-side and productivity benefit impact. This represents 3.5 per cent of the weighted GDP of the nine countries in the GSMA study.

Methodology:

Publicly available data and mobile operator data were employed together with interviews and assumptions based on economic literature to estimate the value of mobile telecommunications to the economy in terms of employment and GDP, both direct and indirect. The total economic impact is defined as consisting of the following elements:

• Direct impact from the mobile operators;
• Indirect impact from other industries related to mobile services;
• Indirect impact due to the surplus enjoyed by consumers in terms of productivity improvements; and
• Indirect impact due to more qualitative social benefits enjoyed by the population, referred to as 'intangible benefits'.

The different impacts are summed together to calculate the total economic impact.

The reports can be found at: http://www.gsma.com/tax and www.ahciet.net/index.php/estudios/estudios-ahciet.

About the GSMA

The GSMA represents the interests of mobile operators worldwide. Spanning more than 220 countries, the GSMA unites nearly 800 of the world's mobile operators with more than 230 companies in the broader mobile ecosystem, including handset makers, software companies, equipment providers and Internet companies, as well as organisations in industry sectors such as financial services, healthcare, media, transport and utilities. The GSMA also produces industry-leading events such as the Mobile World Congress and Mobile Asia Expo.

For more information, please visit the GSMA corporate website at www.gsma.com or Mobile World Live, the online portal for the mobile communications industry, at www.mobileworldlive.com

About AHCIET

AHCIET is a non-profit, private organization founded in 1982, comprised by 50 Information and Communications Technologies companies from all over Iberoamerica. The Association's mission is to serve as platform that facilitates dialogue between the public and private sector e.g., (international organizations, regulators and governmental authorities.), in order to foster alliances and initiatives resulting in the development of policies, programs and projects that leverage economic and social development of the Iberoamerican countries, by taking advantage of new technologies and hence to advance to the information society.