Bangladesh government's effort to slow down mobile growth finally likely to bear results

Bangladesh government’s effort to slow down mobile growth finally likely to bear results

Posted on September 23, 2008 / 7 Comments

In its 2005-06 budget (Khaleda Zia) the Bangladesh government imposed a regressive Taka 900 tax on each SIM that was issued. We describe the tax as regressive because, if it was passed on to customers, it would hurt the low-user segment (generally the poorer segment) of the market more, because it’s a fixed tax that does not vary with use.

The mobile operators did not quite understand what the government wanted to do and decided to absorb the tax. They made various pleas and protests and got the tax reduced to Taka 800. Finally, in 2008, they decided they had enough and decided to pass on most of the tax to customers. As a result, it is likely that Bangladesh, which is experiencing the highest mobile growth rates in the world, will see a slow down, especially in the rural areas and among poorer people.

If the companies decide to pass on the entire tax to those who wish to obtain connections, they will serve the government’s objectives better. They must understand that the government would much prefer that mobile service remain a privilege of the rich and those who work for the government.

7 Comments

Abu Saeed Khan
September 23, 2008, 12:33 pm
Grameenphone paid US$63.55 million corporate tax in 2007-08 fiscal year and became the highest contributor in this category. Moreover Grameenphone, Banglalink and TMIB have contributed 23% of the total top ten value-added tax by paying $338 million at the same time.

The government is basically slaughtering this golden goose with SIM tax. The mobile operators are still subsidizing and the cost of subscription will be further up once the subsidy is totally withdrawn to improve their EBIDTA margin. Yet the government will keep on asking for the golden eggs!

By the way, the government is contemplating to introduce Universal Service Fund. The World Bank is also supporting it. Cheers!
Amar
September 24, 2008, 6:38 am
@Abu Saeed Khan

GP actually Paid over $300 Million in Taxes.
Abu Saeed Khan
September 24, 2008, 7:17 am
I have not created the numbers. A report of the Daily Star is my reference. I have just used US$1=Tk.68.45 conversion rate for the general readers’ understanding.
Amar
September 24, 2008, 10:16 am
I included total payment to the Govt. Tax + VAT
Rohan Samarajiva
September 24, 2008, 10:34 am
Governments are increasingly using mobile operators as tax collectors. The VAT and various mobile levies (including the SIM tax) fall into the category of taxes the government directly imposes on customers, using the operator as a tax collector.

Abu Saeed seems to have referred to corporate taxes. Many people wrongly think corporate taxes are paid by the corporations. In actual fact, they are paid by customers.

The only taxes we do not object to are general value-added taxes. The others distort market signals.
Rohan Samarajiva
September 24, 2008, 10:37 am
Mr Amar, You seem to be well informed about the sector developments in Bangladesh. I will be at the Dhaka Radisson Oct 8th (whole day). If you are interested, might to useful to chat. Pls communicate through the address under the “contact” button.
Amar
September 25, 2008, 6:06 am
@Rohan Samarajiva

Thanks, I appreciate the offer but, unfortunately I am still a student currently residing in USA. Nonetheless, we (readers) appreciated the detail reports you guys post here. Thanks