Telecom Regulation: Tax

After surveying the impacts of spectrum mortgage as proposed in India, we cast our eyes on Brazil for another policy matter: tax.

Essentially, the Communications Minister of Brazil is concerned with the following:

“Excessive” taxes that amount to “38% of mobile phone bills”

“Distortion” as a result of higher taxes on prepaid services (52% of phone bills) than postpaid (21%)

By reducing taxes, the government aims to promote spending, thereby stimulating the economy. Of course, it is well aware of the trade-off involved between macroeconomic goals – growth and fiscal balance in this case. However, the minister believes that tax receipts do not have to fall given the rising revenue earned by the telecom industry – 10% year-on-year higher in 2011, he estimates.

There are other policy considerations, including the potential implications onthe goal of equity,digital divide andwelfare cost. Theseunexamined issues are explored in our recently published ABI Insight. We also looked at thefiscal prospect from another perspectivein the context of falling prepaid subscription ratio, as well asthe dynamic between a new tax regime and other measures to boost smartphone penetration.