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."