Let’s start with a trivia: what is the highest taxed, non-luxury product in Bangladesh? Yes, you probably got it right, mobile telecom services is hands down the winner. Currently, the net taxation on any type of mobile telecom services (defined as services provided through SIM/RIM) is currently 21.75%. This basically means that, in order to consume Tk100 worth of telecom services, you have to pay approximately Tk22 to the government treasury.
Mobile telecom service basically means talking over cellular phones, sending text messages, browsing the internet and so on. This industry has had massive progressive impact on the socio-economic scenario of Bangladesh in the last two decades. The biggest revolution of this industry came in September 2013 when 3G services were finally launched in Bangladesh. In roughly three years since the launch, the telecom subscribers base has grown rapidly by 21% and with it, the internet subscribers base has grown by 72%, a whooping leap from 35million to 60million. These new 25million internet users have been able to jump on the global online bandwagon only because of the availability and convenience offered by mobile phones. Now questions may arise, how did previous internet pricing have rendered this growth thus far and how the new taxation policies is likely to have implications in the future.
When the 3G services were launched, an average price of a 1GB internet package was approximately Tk300 without tax. The final price would come up to Tk345 when a 15% VAT is added. Now, the average price of a 1GB package is around Tk200 without tax while the final price is 243.5tk with 21.75% of tax. It is interesting to see how telecom operators reducing the price of internet by roughly 33%, the government's share from the same service has increased by 45% in the last three years.
Just like the mobile voice service has positively impacted Bangladesh in the early 2000s, the widespread availability of high speed 3G internet has the potential of transforming the economy to the next level. We are already experiencing the boom of e-commerce in Bangladesh. A lot of new start-ups are coming up with innovative ideas with ICT as the basic platform. However, in order for these businesses to become a significant, mainstream industry, it is crucial that they attract customers for all geographies and socio-economic classes of the country. So it is imperative to ensure internet availability at a low cost in every corner of the country to facilitate this new sector. More importantly, the majority of new internet subscribers are now coming from the rural areas as the telecom operators are gradually establishing 3G network in the deep pockets of the country. So the burden of this incremental tax is falling mainly on the rural people for whom internet services is not simply a luxury, but rather it holds the potential to change their lives for the better.
The telecom sector is an important contributor to the government’s earnings. However, it is important to understand the need for the prioritisation of tax burden based on strategic planning. So, the government can think of reducing the overall 21.75% taxation (comprising of VAT, supplementary duty and surcharges) at least on the internet packages, so that the internet revolution in Bangladesh continues to gain momentum and the marginal population can also reap the benefits.
The author is currently working as a pricing specialist in Grameenphone Limited. The opinions expressed above are solely based on the author’s personal views and do not represent that of his employer.