Government retreats a little on taxing BOP mobile users

Posted on September 6, 2007  /  8 Comments


Sri Lanka has dropped a controversial fixed levy from mobile phones which would have hit the poorest phone users the hardest, but slapped a 7.5 percent tax on calls, telecom minister Rauf Hakeem told parliament Thursday.The government initially proposed a fixed 50 rupee charge which would have hit the poorest or ‘bottom of the pyramid’ users hardest, as well as tripling a usage based charge from 2.5 percent to 7.5 percent.

Unfair Charge

Telecom analysts pointed out that at one network where the average spend per pre-paid user was just 311 rupees, taxes would take away 110 rupees.

Hakeem told parliament that a 7.5 percent proposed charge had now been increased to 10 percent following discussion with President Mahinda Rajapaksa last night and the fixed levy had been abandoned.

“I think that the removal of the regressive tax is a great benefit for the bottom of the pyramid, but of course the government should not be taxing industries just because they do well,” says Rohan Samarajiva, a former telecom regulator who led a campaign against the levy.

“And government should not discriminate between mobile and fixed telecommunications.”

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  1. Even 10% tax on top of 15% VAT is gross unfair. Communication is a basic need of an individual. If government can provide most of the other basic needs (education, health, electricity) either free or subsidised, why only tax communication? Is there any logic in that?

    If government is worried telecom industry is making excessive profits, they can always increase the competition by opening door for more players. That will reduce the prices towards consumers’ benefit.

  2. agreed, but what we did was to choose our battle and try to stop the regressive tax.

    our focus in this particular instance was to save the voiceless masses at the bottom of the pyramid. we had very little time and we went all out to point out to the powers that be what a negative impact it will have, explained in simple language.

    i think rohan’s short, but most compelling voice cut against it on the evening news 2 days before the parliament debate played a big role.


  3. Harsha,

    Didnt the government rush the bill without the usual several hours of debates? If so, can some civil society group go to courts and block this piece of legislation?

  4. The question has arisen about what actually got approved amidst the fisticuffs in Parliament. Was it the original LKR 50 7.5% tax or the promised 10% tax?

    Our calculations show that the amendment favors those paying monthly phone bills of less that LKR 2000. So for example, a person paying LKR 200 a month, would have paid LKR 65 in phone-specific taxes (in addition to LKR 30 in VAT; not that I have not done the tax-on-tax calculations, so slight inaccuracies are present) under the original proposal while the amended tax would impose a burden of only LKR 20 (a reduction of LKR 45).

    A person with a monthly bill of LKR 800 would benefit by LKR 30 (LKR 110 vs LKR 80).

    The significance of the LKR 2000 cross-over can be seen by looking at ARPUs. Hutch (pure prepaid) ARPU is LKR 311. Dialog prepaid is LKR 414. Dialog postpaid is LKR 1709.

    So one can see that almost all the Hutch and Dialog prepaid customers and about at least 1/3rd (conservatively) of Dialog postpaid customer benefit from the removal of the LKR 50 fixed charge.

  5. Sri Lankan government handles different categories of basic needs in different ways. Let us take few examples.

    1. Food – Although food items are not taxed, gas (a major component) is taxed.
    2. Shelter – All construction items taxed. (GST)
    3. Clothes – Again all items taxed. (customs duty, GST)
    4. Health care – mostly free., medicine not taxed
    5. Education – Free (school) or not taxed (tuition classes)
    6. Transport – Heavily taxed bot vehicles and fuel
    7. Telecommunication – Heavily taxed (25%)

    So 1-3 above is taxed but not too heavily, 4 and 5 is provided free and 6 and 7 heavily taxed.

    I do not see much logic in this. For example, the tax money taken (from the entire population, not just from the rich) when consuming telecommunication and transport facilities is in turn used to provide the same people education and health facilities free.

    Also note the two components taxed most are the ones required by people to connect themselves to the outside world.

    Does this mean the government wants us to be educated and healthy but prefers to live in isolation?

    Food for thought.

  6. Janathawa matha patawena aluth badu bara (The new tax burden on people)
    Lankadeepa, 12 September 2007
    Web version may require Sinhala font to view | Print version also available

  7. The end of the drama: the 10% mobile-only tax to be implemented with effect from October 1st: