The regulatory frameworks in tax matters used in the last decade in the Latin American region have been surpassed, because they do not promote connectivity and because they do not recognize the importance of this type of services in improving the quality of life in societies and in the efficiency of the productive sector.
This is the photograph identified by new research from the GSMA organization, one of the world’s leading voices in the telecommunications industry.
The GSMA report “Specific taxes on the mobile sector in Latin America. Impact on connectivity and tax collection” analyzed the general and specific taxes imposed on connectivity services in 18 countries in the region.
Thus, it was identified that, in the year 2023, the tax contribution of the sector (2.8%) was more than double what it should be based on its economic contribution to the region’s GDP (1.3%).
Specific taxes fall on both the supply and demand of mobile services. On the operators’ side, the sector is subject to some type of specific tax in all the countries analyzed.
These include recurring payments for licenses and spectrum use, regulatory fees and contributions to universal service funds.
On the user side, 14 of the 18 countries impose specific taxes such as higher VAT, customs duties on devices, activation and numbering fees. These burdens are particularly regressive, since they disproportionately impact the most disadvantaged people. Except for some isolated measures, the region maintains a fiscal burden on the sector similar to or greater than that identified almost a decade ago.
In 2023, specific taxes on mobile connectivity in Latin America They accumulated approximately 4,650 million dollars, equivalent to 6.5% of the total cost of connectivity.
The burden was not uniform in the region, because while the Dominican Republic, Brazil, Argentina and Bolivia applied specific taxes of more than 10% of said cost, in Guatemala, El Salvador and Uruguay they did so below 2%.
In addition to reducing the financial capacity of operators to invest, taxes on mobile connectivity increase the prices of devices and services, hindering the closing of the digital divide.
Mobile services are considered affordable if the total cost of mobile ownership (TCMO) does not exceed 2% of users’ monthly income.
In Latin America, in 2023, none of the countries was below that threshold for the 20% of the lowest-income population; with some reaching quadruple it, such as El Salvador (8.8%) and Uruguay (8.1%).
In most countries, the total tax burden represented between 10% and 20% of the TCMO, with cases such as Argentina and Brazil in which it represented more than a quarter (26.4% and 25.9%, respectively).
Less taxes, more connectivity and more tax collection
Based on an econometric model, the GSMA study simulates a specific tax reduction scenario to measure its effects on digital inclusion and tax revenue in eight countries.
The results reveal that a reform in this sense could make mobile services affordable for more than 30 million people in the region. This reduction would not cause negative effects on revenue, but rather the opposite.
The net effect of a reduction in specific taxes would generate profits above the decline in direct tax revenuewith values ranging from a practically neutral effect in countries such as Mexico and Panama, to increases of the order of 1,200 million dollars per year in Argentina and 7,600 million dollars per year in Brazil.
This responds to the positive effects of digitalization on the economy, in general, and on tax collection, in particular.
Digital channels reduce the informality of transactions and promote the simplicity and traceability of payments, favoring the work of tax authorities.
“The region’s tax frameworks were designed at a time when mobile connectivity was a status symbol, and taxing it generated tax revenue with a limited social impact. Today, these services are democratizing social and economic development. In this context, maintaining specific taxes implies a high opportunity cost. Reducing them would allow us to close connectivity gaps and add 30 million Latin Americans to the digital world, even increasing State income,” said Lucrecia Corvalan, director of public policies for Latin America at the GSMA.
(With information from Nicolás Lucas.)
