Taxing Telecommunications in Developing Countries
IMF Working Papers, November 15, 2017
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- Taxing Telecommunications in Developing Countries
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Bibliographic details
- Authors: Thornton Matheson, Patrick Petit
- Published: November 15, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484324981.001
Summary
- Developing countries apply numerous sector-specific taxes to telecommunications, whose buoyant revenues and formal enterprises provide a convenient “tax handle”.
- The paper explores whether there is an economic rationale for sector-specific taxes on telecommunications and, if so, what form they should take to balance the competing goals of promoting connectivity and mobilizing revenues.
- A survey of the literature finds that limited telecoms competition likely creates rents that could efficiently be taxed.
- The authors propose a “pecking order” of sector-specific taxes that could be levied in addition to standard income and value-added taxes, based on capturing rents and minimizing distortions.
- Taxes that target possible economic rents or profits are preferable, but their administrative challenges may necessitate reliance on service excises at the cost of higher consumer prices and lower connectivity.
- Taxes on capital inputs and consumer access, which distort production and restrict network access, should be avoided; so should tax incentives, which are not needed to attract foreign capital to tap a local market.
Key findings and analysis
- Limited telecoms competition likely creates rents that could efficiently be taxed.
- Sector-specific taxes are prevalent in developing countries because telecommunications offer buoyant revenues and formal enterprises—a convenient “tax handle”.
- There is a trade-off between mobilizing revenue and promoting connectivity; tax design should seek to balance these goals.
- Administrative challenges associated with taxing rents/profits may push policymakers toward simpler service excises, which raise consumer prices and reduce connectivity.
- Taxing capital inputs and consumer access leads to distortions in production and restrictions in network access and therefore should be avoided.
- Tax incentives are unnecessary to attract foreign capital to serve a local market and should be avoided.
Policy recommendations and “pecking order”
- Prefer taxes that target economic rents or profits, where administratively feasible.
- Where rent or profit taxation is administratively infeasible, reliance on service excises is a second-best option, acknowledging the cost of higher consumer prices and lower connectivity.
- Avoid taxes on capital inputs and consumer access because they distort production and restrict network access.
- Avoid tax incentives aimed at attracting foreign capital for local market provision.
Publication and metadata
- Title: Taxing Telecommunications in Developing Countries
- Authors: Thornton Matheson, Patrick Petit
- Publication date: November 15, 2017
- Series: IMF Working Papers, Working Paper No. 2017/247
- Pages: 42
- Volume: 2017
- Issue: 247
- DOI: https://doi.org/10.5089/9781484324981.001
- Stock No: WPIEA2017247
- ISBN: 9781484324981
- ISSN: 1018-5941
- Subject: Corporate income tax, Excises, Rent tax, Tax incentives, Taxes, Value-added tax
- Keywords: ad valorem excise, Africa, Cell, cell phone, cellular, Corporate income tax, excise, Excises, fixed cost, Global, incoming call, international call, phone, rate of return, regulation, rent, Rent tax, Sub-Saharan Africa, tax, tax burden, Tax incentives, telecommunications, telephone call, value-added tax, Value-added tax, WP
Source: "Taxing Telecommunications in Developing Countries", IMF Working Papers 2017, 247 (2017).
Content in this bundle
- Taxing Telecommunications in Developing Countries, WP/17/247, November 2017