ICC Document & publication

ICC discussion paper on the adverse effects of discriminatory taxes on telecommunications services

The following are further examples of the discriminatory taxes imposed on telecommunications goods and services in some countries. These all represent opportunities for the ICC to work with national governments to avoid, minimize or repeal the identified tax.

A number of countries apply taxes to telecommunications goods and services at higher levels than for other goods and services. These burdensome and discriminatory taxes deter the adoption and use of broadband, mobile and other advanced ICT sector tools that are major drivers of development and growth in the information-based economy of the 21st century.

The World Bank has found, based on an econometrics analysis of 120 countries, that each 10% increase in broadband penetration increases economic growth by 1.3%. Unfortunately, the tax treatment of telecom goods and services sometimes reflects the out-dated view that communications services should be taxed as luxuries affordable only by the rich – rather than as essential services for all, which they are today. Because telecommunications taxes often have the most stifling impact on the low income consumers who represent the greatest opportunity for achieving universal adoption of fixed or mobile broadband, these taxes are directly inconsistent with both Millennium Development Goals and the public policy of most countries that have implemented the taxes.

High taxes on communications services frustrate efforts to increase telecom service deployment by raising consumer prices and reducing demand for these services. A study by U.S. economists Greg Sidak and Allan Ingraham in 2004 found that each 1% increase in the price of wireless service reduces consumer demand by between 1.12% and 1.29%. Reductions in consumer demand reduce the cash flows available for investment in the build-out of telecom networks and the development of new services. With information and communications technologies (ICTs) now playing a key role in stimulating increased productivity growth in all economic sectors, tax policies that reduce or slow investment in telecommunications infrastructure therefore reduce or slow the achievement of the broader economic benefits that follow from that investment.

Remedying the discriminatory tax treatment of telecom goods and services may reduce tax receipts in the short-term, but the longer-term increase in use of advanced capability devices, service demand and network deployment resulting from these tax reductions is likely to counteract this loss of tax revenues over time.

For the reasons stated above, the ICC recommends that countries minimize the taxes imposed on telecommunications goods and services. Far from being luxuries, the tools from this sector bring the building blocks of opportunity to the global information-based economy. Increasingly, public policy is oriented towards connecting the unconnected in order to achieve 100% adoption of advance telecommunications services. Any taxes that have the effect of impeding that goal merit reconsideration.