Cutting telecom taxes increases total government revenue

A major obstacle to the spread of new telecom services in under-developed countries is government dependence on revenues from the existing telecom monopoly.  ITU and World Bank advisers promise that if you remove restrictions and reduce taxes, the growing telecom industry will yield more total tax revenue while also fostering economic growth (thus increasing general tax revenues).  But that's a big risk to take.  How do you pay government employee salaries while waiting for the benefits of growth to kick in?

This article in the Pakistani Business Recorder gives specific tax rates, teledensity growth figures and resulting tax revenues which may help more backward governments to take the leap.

	Activation Charges	Subscriber Growth	GST/Excise Revenues	Activation Revenues
2003-04	Rs. 2000		Rs.   5.1B	Rs.   4.1B
2004-05	Rs. 1000	154%	Rs.   9.9B	Rs.   7.6B
2005-06	Rs.   500	169%	Rs. 18.8B	Rs. 11.4B

Certainly Pakistan has had no lag in revenue gains as they have cut activation fees.  Considering all the other benefits that telecom is bringing to Pakistan, it's too bad they are only discussing a further cut to RS. 250.  The best approach for poor people in Pakistan would be to completely eliminate activation fees.  Either way, the government is certain to gain in total revenue.

Comments

[Call Cruncher]

Great post! Thanks for the article and I will be looking forwrad to your future work.