Telecom looks to tax cuts

The finance minister's assurance to revise the tax structure for telecom industry has given it a new ray of hope to roll out in the mostly untapped rural areas.
"We understand there is scope for Bangladesh's tele-density to grow. We will consider revising the tax structure for the sector within the next six months," said Finance Minister AMA Muhith in his final budget speech in parliament on Wednesday.
He also said the government is flexible to revise the taxes for the sectors that are crucial for economic development.
Telecom industry insiders welcomed the minister's assurance and said it will be a win-win situation for the operators and the government, as reduced taxes will ultimately help the government's vision for building a 'digital Bangladesh' by 2021.
The sector people were repeatedly demanding a waiver of Tk 800 tax on SIM (subscriber identity module) card and a reduction in the existing 65 percent tax on the imports of telecom equipment.
The handset importers also demanded a fixed Tk 100 tax on each handset import instead of the existing 12 percent duty on value.
The final budget for fiscal 2010-11, however, got through as it was proposed for the telecom industry -- without any tax cut.
Since the imposition of Tk 900 tax on SIM in the 2005-06 budget, the mobile operators have been taking all the burden of this taxation and anticipated that the government would eventually withdraw the tax. But the government never withdrew the tax. All it did was a reduction to Tk 800.
"We welcome the finance minister's assurance. If it happens, the operators can go rural at an affordable cost," said Mahmud Hossain, head of corporate affairs of Grameenphone, the leading mobile operator.
Six mobile operators now serve 5.6 crore customers, while eleven landline operators have so far brought 12 lakh users under their network. All these operators pay Tk 800 as connection tax, on behalf of their customers, due to a stiff competition.
On an average, the telecom sector pays Tk 5,000 crore in taxes a year. The government earns the revenues from SIM tax, equipment import tax, yearly revenue sharing and VAT (value added tax).
The SIM tax accounts for 20 percent of the government's total earnings from the sector.
Bangladesh's telecom penetration rate is 38 percent, according to the finance minister's budget speech, meaning that 62 percent people are still untapped.
The fast-growing mobile market requires 7.5 lakh handsets a month, according to Bangladesh Mobile Phone Importers' Association.
The industry insiders said the telecom penetration rate is slowing down eventually, as the operators are not willing to roll out products in the rural areas due to their poor business returns.
Bangladesh has the potential for acquiring more than 55 percent penetration rate in the next five years. A high tax on the telecom industry is baring the development, said the operators.
The mobile industry anticipates that the subscriber base will reach 95 million by 2013 from the existing 56 million if the SIM tax is waived.
The annual earning from the broadband internet is expected to reach Tk 12,800 crore by 2020 if the country ensures a rule-based policy regime, according to a study conducted by Boston Consulting Group USA.
Bangladesh's internet penetration rate may grow to 32 percent at household level and 66 percent at business level by 2020 from the existing average of four percent.
Of the expected income, 90 percent will be generated only through the internet-based business. Mobile broadband will play a crucial role in reaching the internet to the mass, said the study conducted on behalf of Telenor Group, the majority shareholder in Grameenphone.
Referring to the findings of the study, Mahmud Hossain said any tax cut will surely help achieve the income target. "And the growth of internet penetration through handy mobile will be the most popular way to reach technology to the mass."

Telecom looks to tax cuts

The finance minister's assurance to revise the tax structure for telecom industry has given it a new ray of hope to roll out in the mostly untapped rural areas.
"We understand there is scope for Bangladesh's tele-density to grow. We will consider revising the tax structure for the sector within the next six months," said Finance Minister AMA Muhith in his final budget speech in parliament on Wednesday.

He also said the government is flexible to revise the taxes for the sectors that are crucial for economic development.

Telecom industry insiders welcomed the minister's assurance and said it will be a win-win situation for the operators and the government, as reduced taxes will ultimately help the government's vision for building a 'digital Bangladesh' by 2021.
The sector people were repeatedly demanding a waiver of Tk 800 tax on SIM (subscriber identity module) card and a reduction in the existing 65 percent tax on the imports of telecom equipment.
The handset importers also demanded a fixed Tk 100 tax on each handset import instead of the existing 12 percent duty on value.
The final budget for fiscal 2010-11, however, got through as it was proposed for the telecom industry -- without any tax cut.
Since the imposition of Tk 900 tax on SIM in the 2005-06 budget, the mobile operators have been taking all the burden of this taxation and anticipated that the government would eventually withdraw the tax. But the government never withdrew the tax. All it did was a reduction to Tk 800.
"We welcome the finance minister's assurance. If it happens, the operators can go rural at an affordable cost," said Mahmud Hossain, head of corporate affairs of Grameenphone, the leading mobile operator.

Six mobile operators now serve 5.6 crore customers, while eleven landline operators have so far brought 12 lakh users under their network. All these operators pay Tk 800 as connection tax, on behalf of their customers, due to a stiff competition.

On an average, the telecom sector pays Tk 5,000 crore in taxes a year. The government earns the revenues from SIM tax, equipment import tax, yearly revenue sharing and VAT (value added tax).
The SIM tax accounts for 20 percent of the government's total earnings from the sector.
Bangladesh's telecom penetration rate is 38 percent, according to the finance minister's budget speech, meaning that 62 percent people are still untapped.
The fast-growing mobile market requires 7.5 lakh handsets a month, according to Bangladesh Mobile Phone Importers' Association.
The industry insiders said the telecom penetration rate is slowing down eventually, as the operators are not willing to roll out products in the rural areas due to their poor business returns.
Bangladesh has the potential for acquiring more than 55 percent penetration rate in the next five years. A high tax on the telecom industry is baring the development, said the operators.
The mobile industry anticipates that the subscriber base will reach 95 million by 2013 from the existing 56 million if the SIM tax is waived.
The annual earning from the broadband internet is expected to reach Tk 12,800 crore by 2020 if the country ensures a rule-based policy regime, according to a study conducted by Boston Consulting Group USA.
Bangladesh's internet penetration rate may grow to 32 percent at household level and 66 percent at business level by 2020 from the existing average of four percent.
Of the expected income, 90 percent will be generated only through the internet-based business. Mobile broadband will play a crucial role in reaching the internet to the mass, said the study conducted on behalf of Telenor Group, the majority shareholder in Grameenphone.
Referring to the findings of the study, Mahmud Hossain said any tax cut will surely help achieve the income target. "And the growth of internet penetration through handy mobile will be the most popular way to reach technology to the mass."

Govt mum on tax on SIM, mobile sets

Even before the budget for fiscal 2010-11 was placed in parliament, industry players and some government officials felt it was necessary the SIM taxes be abolished or slashed to propel the sector forward. However, Finance Minister AMA Muhith chose to be hush on the matter.
The proposed budget did however focus on linking the rural community under telecommunication networks. But it would be impossible to do so without addressing the SIM (subscriber identity module) taxes or mobile handset taxes, said industry people.
Telecom operators have expressed frustration over the proposed budget as growth of the sector in the mostly untapped rural markets may be hampered unless the taxes are at a minimum.
Speaking at a programme in Dhaka on May 13, both the secretary of the telecom ministry and chairman of Bangladesh Telecommunication Regulatory Commission assured the industry people that the budget would focus on rational taxation for the telecom industry.
But the issue was completely overlooked.
Even some government officials at different programmes said the current budget does not reflect anything in favour of the information and communication industry, with which the government can achieve its goal to make a Digital Bangladesh by 2021.
So, operators had high hopes for the proposed budget for the next fiscal year.
The six mobile operators now serve 5.6 crore customers, while the eleven landline operators brought 12 lakh customers under their networks. All these operators pay Tk 800 as connection tax, on behalf of their customers, due to stiff competition.
The telecom sector pays Tk 5,000 crore in taxes a year on average to the national exchequer. The government earns the revenues from SIM tax, equipment import tax, yearly revenue sharing and VAT (value added tax).
The SIM tax accounts for 20 percent of the government's total earnings from the sector.
"We are completely frustrated, as the issues were not address in the budget," said Zakiul Islam, president of the Association of Mobile Telecom Operators Bangladesh (AMTOB).
He said if the SIM tax is not withdrawn finally, operators will continue subsidising for the sake of competition. But customers will not really get what they deserve from the industry, he added.
According to the finance minister's budget speech, Bangladesh's telecom penetration rate is around 38 percent, which means that 62 percent is still beyond the reach of telecom services.
The president of AMTOB said these people are living in rural areas and have no capacity to spend the same amount of money on telecom services as the urban population.
The digital divide between the rural and the urban population will widen due to the high taxes, Islam said. Operators may also not be willing to go for massive expansion in the rural areas, as there is not much business return, he added.
Mobile handset importers had also appealed to the government to fix the import duty on each handset at Tk 100, as they claimed that the existing tax structure encourages traders to dodge import taxes.
In line with the current budget, handset importers have to pay duties worth 12 percent of the value of the handset.
The proposed budget has nothing new for the importers. The duty structure for handset imports remained same.
"We don't know what actually happened," said Faisal Alim, secretary general of Bangladesh Mobile Phone Importers Association (BMPIA).
"We are completely in the dark about what the budget stated."
The fast-growing mobile market requires 7.5 lakh mobile sets a month, of which, 5.6 lakh are imported through legal channels, according to BMPIA.
Mostofa Jabbar, president of Bangladesh Computer Samity, said the budget proposed some good initiatives, it had some lacking as well.
"Bypassing the cut in taxes on SIM and handsets is one of them."
The government should address the issue immediately if it truly believes in building a Digital Bangladesh by 2021, said Jabbar.

SIM tax must go this time

Banglalink CEO Ahmed Abou Doma shares his thoughts on budget, telecom law

SIM tax stands as a major obstacle to the prospective customers as the newcomers will not be richer than the previous ones, says the chief of the second largest mobile operator in Bangladesh.
Chief Executive Officer of Banglalink Ahmed Abou Doma says such tax should go in the upcoming budget, which he thinks will have a significant impact on the growth of the industry and gross domestic product (GDP).
“Let me start by saying, it's now or never. It's time for the SIM tax to go; it's a shame.”
Doma says this tax hardly exists in other countries. Some have different names for it but in a very nominal value. The present tax is Tk 800 or around $11.51 in Bangladesh. The tax is $1.36 in India, $3 in Pakistan, while Sri Lanka, Cambodia and Indonesia do not impose any SIM (subscriber identity module) tax.
The government may think, Doma says, why it should not take such tax. The government should realise that if the SIM tax is waived now, the revenue that it will get later is much higher, he points out.
The Banglalink CEO says if the revenue does not increase after waiving the SIM tax, the government can again impose it later.
“Give us a chance, give our theory a chance and by the way it's not a theory, it's a proven scientific methodology that shows that 10 percent increase in penetration gives you 1.2 percent increase in GDP."
Contribution of the mobile phone companies to the national exchequer is very high and SIM tax is not the highest among the contributing factors.
“Even removing the SIM tax now, the direct hit on the exchequer is minimal compared to the rest of the items, because we pay VATs on every recharge, licence, frequency fees and revenue share to the regulator. So these make a huge contribution and the SIM tax is not the major one.”
Doma says: "We have 55 million subscribers now. Do you think the next million subscribers will be richer than the previous ones? Of course not. These are poor people somewhere in the rural area."
On the proposed amendment to Bangladesh Telecom Act 2010, he says: “The new telecom act is actually unconstitutional as it doesn't give the operators the right to appeal.”
Doma does not think that it is an investment-friendly law. “You are actually threatening the existing investments in the country. That includes even arresting and putting officials of companies in custody and not having the right to appeal.”
The second point Doma made is related to the fines. In the proposed amendment, the maximum amount of fine has been set at Tk 300 crore, which he says is not practical, as some of the operators who will be subject to that law do not have a paid-up capital more than Tk 10 crore. "This means they are not being penalised, they are being put of business and moreover arrested. What kind of investment climate is this?” The maximum fine in Asia is $2.5 million.
He says Bangladesh's telecom market having six mobile operators is over-crowded.
"With my work with Orascom Telecom I have been exposed to 12 different markets. I think this market is the most competitive one. We do not need six operators; three would be more than enough.”
France and Egypt have three operators each, while China has two. "If you look at India, they have actively 7-8 operators. Then you look at the target population. They have 1.2 billion inhabitants, so every operator on an average is targeting 125 million subscribers, while 150 million Bangladeshis are targeted by six operators. So every operator has a potential theoretical target of 25 million only." There are other aspects such as GDP, which is higher in India, says Doma.
Although competition is good for the end-users, many of the operators may not be able to continue to be in the race, the Banglalink boss says.
"That is not going to be a good sign for the telecom investment in this country."
The weak operators are looking for external arms for financial support so they can continue the race. "I don't want to mention names, but there are operators that won't be able to continue," Doma says.
The positive sides are many as well. An enlightened government and the bodies that understand the potential that this country has in terms of telecom and how much this industry be the locomotive to drive the whole economy can make a huge difference, he says.
There are some officials who are showing signs of understanding. "That was not there when I first came here but I find more of them accepting and embracing that approach."
“Those who will be able to continue in this bone breaking race in Bangladesh will benefit in the long run. But for now it's tough time."