Good move, but tax wireline too

Posted on November 7, 2007 / 5 Comments

Strange is the day I come out in support of taxes; and today is very strange.

But please read this in context: we wish the 10% tax had not been imposed on mobiles; but there was absolutely no reason to tax mobile while exempting fixed; that is why I support the extension of the tax to fixed CDMA. But for some reason the government seems to have difficulty in doing anything right the first time.

Why, for God’s sake protect fixed wireline? These are most privileged people in the country. If you taxing wireless, tax wireline too. Then, as quickly as possible, take off the taxes.

LANKA BUSINESS ONLINE – LBO

The Sri Lankan government Wednesday said it would extend a 10 percent tax on mobile phones to wireless CDMA phones in an effort to raise revenue.

The move was announced by President Mahinda Rajapakse, who is also finance minister, when he presented the government’s budget for 2008 in parliament.

The imposition of the levy on wireless phones is expected to raise 2,200 million rupees.

5 Comments

Sanjana Hattotuwa
November 7, 2007, 4:26 pm
Hi Rohan,

I’m curious – how many times has a government in Sri Lanka that’s imposed telecoms taxes reduced it or taken it off completely afterwards?

Also, your research brought out clearly not just the absurdity of the mobile phone tax, but its essentially unfair nature to those at the BOP in Sri Lanka who use mobiles. I wonder if the same could be said of those at the BOP who have gone in for wireless CDMA phones, which with pre-paid packages, operate in much the same manner as mobiles?

Sanjana
samarajiva
November 7, 2007, 6:37 pm
Gone over the territory earlier.

Inflation funded govt is the worst for BOP. So unless govt is made smaller, one must support taxes. Otherwise govt will do its business funded by inflation and the assetless will suffer most.

General taxes are better than industry taxes.

Use based industry taxes are better than fixed taxes.

Service based taxes are better than taxes that discriminate on the basis of technology, etc.

The debate is about the least bad alternatives.

The new tax (after the Hakeem Amendment) does not include the LKR 50 fixed tax. It was less bad for those paying less than LKR 2000. Same applies to CDMA.

Same people: Our survey showed 22 percent at BOP having their own mobiles and 23 percent having fixed. Why should one group be treated better/worse than other?
Sanjana Hattotuwa
November 7, 2007, 9:34 pm
Grudgingly agree in the SL scenario.

However, as the GSM Association notes (http://www.gsmworld.com/TAX/):

1. Reducing mobile specific taxes and general consumer taxes such as VAT leads to substantial increases in mobile penetration and usage;
2. A reduction in the price charged to the end customer;
3. Increased penetration boosts economic activity. In developing countries a 10% increase in penetration leads to a 1.2% increase in the annual growth rate in GDP;
4. Case study evidence from Kenya suggests that cutting mobile specific taxes can have a revenue positive impact for the government in the medium term in countries where mobile penetration is still low;

Also, in a larger sense, if the debate is about the least bad alternatives, then clearly we must start with addressing corruption, which is significant and quite clearly affect the BOP segment the most. A taxation regime that raises money that goes into the hands of a few or as noted by the COPE report, disappears into ether, means that we are in essence supporting a government (well, three brothers) with scant regard for, among other things, fiscal accountability.

The end of all this could be to attempt here what Italy did in 2004 – http://news.bbc.co.uk/2/hi/europe/4009637.stm !!
samarajiva
November 8, 2007, 8:40 am
These issues have been addressed in a larger forum at the appropriate time:

http://www.lbo.lk/fullstory.php?newsID=1160489410&no_view=1&SEARCH_TERM=24

and

http://www.lbo.lk/fullstory.php?newsID=202991115&no_view=1&SEARCH_TERM=24
Nero
November 8, 2007, 3:12 pm
How serious one should take the new school of economists who focus on ‘happiness’, rather than capital? (These are the guys who talk about GNH or ‘Gross National Happiness’. http://en.wikipedia.org/wiki/GNH) They say strange things.

One such economist (cant remember the name) has proved that ‘mobility’ makes people unhappier. This has a parallel in physics. A physical body always tends to be static rather than dynamic. It becomes dynamic only to spend its kinetic energy in order to be static!

Perhaps this is the same logic tax Sri Lankan govtwallahs are using. So they focus the most mobile technology first, CDMA next and finally fixed wireline.

Isn’t making people happy (not necessarily rich) the aim of every populist government?