Julian Gorman, head of Asia Pacific of Global System for Mobile Association (GSMA), speaks about post-pandemic economic recovery in Bangladesh, the present state of the mobile communications sector in the country, and the future technological advances in the pipeline in an exclusive interview with the Dhaka Tribune’s Bilkis Irani
Can you elaborate the key recommendations for Bangladesh as per the latest GSMA tax report?
One of the most strategic policy instruments Bangladesh can wield to speed up economic recovery and close the digital divide to reduce the tax burden on the mobile telecommunications sector.
In Bangladesh, this tax burden is considerably higher than the average for Asia Pacific.
The key recommendations are firstly to reduce the minimum turnover tax and corporate tax of the mobile sector to align it with the rest of the economy. The minimum turnover tax should be reduced to 0.5% from the current 2%. This would increase GDP by $476 million with an annual gain in tax revenue of $47 million after five years.
Reducing the current corporate tax rate by 5% for non-public and public mobile operators would add an additional $131 million to the GDP, while increasing tax revenue by $14 million annually after five years.
Secondly, we recommend that the tax assessment mechanism is streamlined.
And last, the country should reduce sector-specific taxes on mobile consumers to enhance affordability.
How is the taxation regime impacting the sector and future investment?
The high tax burden on mobile operators has a negative impact and constrains the investment capacity of the sector as it looks to build the digital infrastructure. As a capital-intensive sector, this is an important barrier for the future development of mobile connectivity.
Instead, a conducive tax framework is required to facilitate the attraction of investment required for the realization of the Digital Bangladesh agenda.
Compared with global and regional scenarios, how conducive to growth is Bangladesh’s tax regime?
The mobile sector is subject to a high tax burden, representing 44% of the sector revenue. It is the third highest in the world and is substantially higher than the Asia Pacific average of 24%.
Almost half of every Tk100 in revenue for mobile network operators is paid to the government in taxes and regulatory fees. This is driven by a high-level of sector-specific taxes — 25% of the revenue — and in particular, by sector-specific taxes on operator revenues and profits. For example, the corporate tax rate applicable to the mobile sector is about twice the average 21.55% corporate rate in Asia.
Reforming mobile sector taxation by aligning it with global and regional levels would trigger greater adoption and usage of mobile connectivity.
How can Bangladesh improve its tax structure for mobile operators?
Reducing mobile sector-specific taxes would establish a more conducive tax framework and achieve these positive impacts. Removing the SIM tax of Tk200 would accelerate the connectivity of the 46% of Bangladeshis who are currently offline.
According to mobile operators, spectrum prices are very high in Bangladesh. What can the country do to make spectrum more affordable?
Bangladesh lags behind regional peers in spectrum score holdings. Closing the coverage gap and catering to the rise in data traffic will require affordable and sufficient amounts of technology-neutral spectrum for operators in low-bands (below 1 GHz), mid-bands (e.g., 3.3-4.2 GHz), as well as high-bands (mm waves).
Also, rationalization of prices for backhaul links, affordable pricing for mid-band 5G spectrum in the near future, unified licencing and technology neutrality are some of the policy areas that need to be looked at closely. Most importantly, open, transparent and multi-stakeholder consultations are critical to promote reliable and resilient connectivity to all citizens.
How can Bangladesh improve its regulatory environment to foster growth in the telecommunication industry?
Mobile operators are not allowed to build infrastructure that supports their networks, for example, fibre backhaul. This fragmentation of the licensing regime — there are 23 different types of licences — not only creates and propagates inefficiencies that increase the cost to the end consumer but also impacts quality of service.
We encourage the government to migrate to a unified licencing framework, especially in preparation to launch 5G, where integration of the communications network is important to realize the full benefits of the technology. Furthermore, a whole-of-government approach to policy making will ensure better coordination of digital transformation initiatives across the public sector, complemented by private sector investment and innovation.
In your opinion, was 4G a success in South Asia?
In North East Asian countries such as Japan and South Korea, 4G has wide acceptance but the situation in South Asia is mixed.
4G adoption accelerated in India with the introduction of low-cost plans and handsets. As a result, 63% of connections in 2020 were 4G. In Pakistan, the number is 35%.
But in Bangladesh, only 28% of mobile connections were on 4G even though over 95% of the population has 4G coverage. In many developing Asian countries, access to the internet is exclusively through the mobile phone. Much more needs to be done by governments in collaboration with the mobile industry to increase digital inclusion.
A large chunk of the Bangladeshi population still uses feature phones. What can be done to get people to move to better quality handsets and enjoy the benefits of 4G?
Affordability of 4G smartphones is a major barrier to wider 4G adoption. The Bangladesh government has incentivized local production since 2017. Despite the strong shift to local manufacturing, a 4G smartphone costs about four times as much as a 2G feature phone. The government can help reduce this gap with targeted policies towards 4G handset production and import and can also encourage wider availability of financing to purchase 4G handsets.
Do you think Bangladesh is ready for 5G?
4G technology is expected to continue playing a prominent role in foreseeable future but, with concerted action, there is no reason why Bangladesh cannot be ready for 5G by 2023.
The country needs a flexible, forward-leaning regulatory foundation that can support 5G. This includes a unified licencing regime with a single-window clearance, ecosystem readiness, affordable 5G devices, tax rationalization, a spectrum roadmap coupled with close collaboration between the government and the mobile industry to ensure that 4G penetration is at least at 70% before it launches 5G.
Should telcos start offering fintech functionality on their networks?
We have seen rapid and deep adoption of mobile money in Africa and Pakistan where regulations enable telcos to offer mobile financial services directly or through their subsidiaries. However, regulatory barriers in Bangladesh prevent mobile operators from offering these services.
A different set of regulatory barriers prevent operators from leveraging their customer data to offer value-added fintech services. Regulations should evolve to permit a range of players, including mobile operators or their subsidiaries to offer financial services.
How do you think telecommunications and digital technologies will accelerate economic recovery in the post-COVID-19 era?
In the near term, mobile technology will enable critical services such as e-learning, telehealth, contact tracing to identify hotspots of infection, and work from home.
Beyond the pandemic, the mobile industry will be the platform that powers a truly digital society. The government must take a strategic view and enable the industry that will be crucial to implementing the 2041 Perspective Plan, achieving all 17 of UN Sustainable Development Goals (SDGs) and recovering economically in the aftermath of the pandemic.