No change in SIM activation tax disappoints industry
* 35% of mobile operators’ revenue goes to the government
* Telecom sector attracted $9b in FDI over the last 3 years
By Romail Kenneth
KARACHI: Telecom sector of the country has shown a halfhearted response to the federal budget 2007-08. Mobile phone operators were hoping a reduction or total elimination of tax on mobile phone connections or SIM card activation. The mobile operators in Pakistan contribute almost 35 percent of their revenue to the government in terms of taxes and other charges.
Talking to Daily Times on phone, Senior Vice President, GSM Association (GSMA), Ricardo Tavares said that the GSMA CEO, Mr Rob Conway had a very positive meeting with President Musharraf in Islamabad on April 4th, 2007 and during the meeting the President replied positively to his demands and therefore they were optimistic that the upcoming fiscal year’s budget will incorporate reduction of the activation tax by at least Rs 100.
Mr Tavares said that the activation tax limits the adoption of mobile phones and mobile services, as it makes it more expensive for people to use a mobile phone. He said that they believed that a reduction in the activation tax would actually lead to an increase in total tax collection, as more people would be able to afford mobile phone usage.
The GSMA has called for a reducing the activation tax to at least Rs 400 and believes that this would enable many more people in rural areas to afford mobile phones and enable mobile operators to extend their network coverage, he added.
Giving his company’s point of view, Director Corporate Communications, Telenor, Syed Hasnat Masood said, “The industry believes that reduction of SIM activation tax would have helped the operators invest more for expansion into the rural areas. So one possible implication of the inaction on this account is the impact on the growth of rural teledensity, which could have been supported.”
A spokesperson for Mobilink told Daily Times, “Cellular mobile has played a major role in the development of the telecom sector, to continue however with falling average revenues and a price sensitive market it is becoming increasingly difficult to take this development much further. Therefore we urge the government of Pakistan to eliminate the prohibitive SIM Activation Tax in this budget, since we believe that it is a deterrent to the provision of telephony to this nation.”
He further said that the government has yet to show that it will be following up on its assurance of reducing the activation tax after concerted efforts put in by the cellular industry and the GSMA.
Apart from Mobilink and Telenor no other telecom operator commented on this issue.
The industry and the GSMA had demonstrated through statistical analysis based facts that reduction or elimination of the activation tax on mobile phone connections would benefit the national exchequer and the less privileged people of Pakistan, he added.
Previously, the activation tax was Rs 2,000 and was reduced when the Pakistan Telecommunication Authority (PTA) took up the issue with the President and the Prime Minister contending that slashing the tax would result in more revenues for the government.
The tax was reduced by 50 percent in the budget 2004-05, which the industry claims stimulated the subscriptions that grew from 5 million to 12.8 million in one year. Revenue collected by the government from the industry increased from Rs 11.5 billion to Rs 21.9 billion in the same period.
This forced the PTA to again recommend the government to further reduce activation tax from Rs 1000 to Rs 500. Its recommendation was accepted and incorporated in the budget 2005-06. According to the PTA, the mobile sector contributes 54.1 percent of total Foreign Direct Investment (FDI) inflows. In the fiscal year 2005 – 06 the sector attracted $1.9 billion in FDI as compared to $484 million a year earlier. Over the last three years, FDI in this sector totaled $9 billion and has been crucial for balancing the current account deficit. Privatisation in the telecom sector sparked these new investments, which led to the creation of new companies like Warid Telecom, Telenor Pakistan and expansion of existing firms.
Numerous academic studies have shown that access to a mobile phone makes people and businesses more productive, benefiting the economy and ultimately government tax revenues. A study commissioned by GSMA and conducted by Deloitte revels that mobile communications industry contributed a total of Rs 312.5 billion to the economy in 2006, representing almost 5 percent of total GDP, an increase of over 500 percent of the total contribution of Rs 45 billion in 2003. The mobile sector has created over 210,000 direct jobs to date. The analysis suggests that a 10 percent increase in mobile penetration can increase the annual growth rate of Pakistan’s GDP by 1.2 percentage points.