After years of decreasing prices, this month marked a turning point for the Pakistan mobile industry. Virtually all the big players have increased prices, by slapping on a 5% service charge on pre-paid celluar connections. Here is the notice from Mobilink’s website:
Dear Jazz Customer, from now onwards 5% service charges (on recharge face value) will be applicable on all recharges via Jazz Load or scratch card.
Yet even as the industry strives to make handsets and services cheaper, governments keep adding costs—mainly by levying taxes and customs duties. And these are particularly high in sub-Saharan Africa, according to a report released this week by Frontier Economics, a consultancy, at the behest of the GSM Association (GSMA), an industry lobby. The average ratio of tax payments to operator revenues is 30%. On average the mobile industry, which accounts for 4% of GDP, contributes 7% of national tax revenue.
This enthusiasm for taxation is easy to explain: governments have to tax something, and mobile phones are an easy target, since operators’ billing systems do all the hard work. But treating mobile phones as a cash cow is shortsighted, says Gabriel Solomon of the GSMA, because mobile-specific taxes reduce demand. If governments did away with them and charged only VAT, tax revenues from the mobile industry would be around 3% higher by 2012, the report found, and the average penetration rate would increase from 33% to 41%. (Studies have found that in a typical developing country, an increase in mobile penetration of 10% boosts GDP growth by around one percentage point.)
That bears repeating: Studies have found that in a typical developing country, an increase in mobile penetration of 10% boosts GDP growth by around one percentage point.
The govt. has added a flat Rs. 250 (or is it 500Rs) additional tax on the import of cellphones, besides all the other taxes already present. This was a masterstroke, leading to widespread smuggling of cellphones, as it’s cheaper to bring them in illegally now than to pay all the duties and taxes. The flat tax is also repressive, drastically increasing the prices of the basic phones which practically everyone uses, while having a lesser effect on the more expensive models.
The price increases coupled with higher taxes has already stopped cell phone growth – there could even be a decline in the industry leading to a shakeout as calls become increasingly unaffordable.
that should read “the flat tax is also regressive” (i.e. proportionately more burdensome to people who spend less). much truth in what you’ve written. right after the surcharges on the 379 “luxury” items (including toothpaste?!?, woo-hoo, miswak here I come!) one of my friends struck a pose like moses on the mountain and sarcastically remarked “my people… let the smuggling begin!”
Well said, even the market advertisement of so called “best packages” is also deceptive. For example they will write the lowest call rates in extremely large fonts and then there will come a very small line in the bottom of screen not visible if you are busy looking at models and that line will read “terms and conditions apply” and if you ask help line they will start barking package subscription charges, daily charge etc.
Unfortunately, in our country there is little or in fact no protection is given to consumers. Had it been in Europe or other countries these companies would have been slammed with cases from Consumer Protection Societies for deceptive marketing.
These days the trend of making “associations” is on verge, I suggest that we also start our own association and initial a boycott for such companies after all they run on our money. This would be a bit difficult but financial crunch will make these companies realize their unethical way of doing business.
Nice article. Thanks.
Eugene
5% is bad news