Luxury tax has prevented mobile sector from surpassing 100mn lines

Mexico could have had more than 100mn mobile phone lines by now if not for tax increases that the government slapped on telecommunications services last year, Ernesto Piedras, president of consultancy the Competitive Intelligence Unit, told BNamericas.

At the end of June, the mobile telephony subscriber base was 93.7mn lines, representing 83.4% penetration, according to the telecommunications sector production index (ITEL).

“We would have surpassed 100mn lines if it weren’t for the IEPS [tax],” Piedras said.

The CIU was one of 32 organizations that on July 22 sent a letter to President Felipe Calderón asking the government to remove the IEPS “luxury” tax for telecommunications services by 2012.

Though congress has already exempted internet services from the IEPS tax, the document asserts that all telecommunications services must be exempt from this charge, including data, TV, fixed and mobile telephony.

Faced with a stagnant economy that is closely linked to the fortunes of the US, Mexico’s government introduced in January 2010 a 3% excise tax on telecoms and 1% general increase in VAT, bringing total tax on the sector to 19%.

According to Piedras, the government always hits telecoms because it grows. But the government’s logic is contradictory, because according to the national development plan, telecommunications is considered a basic service like water and electricity.

“In Mexico, we colloquially call it a luxury tax because it’s the same as that which is applied to champagne and caviar. But connectivity isn’t a luxury,” Piedras said.

The analyst said that if there was any justification for taxing telecom while the national economy was in crisis, that logic no longer applies as the economy is now growing at 5%.

Piedras, quoting the oft-cited prediction that a 10% increase in internet connectivity leads to 1% growth in GDP, said the tax is affecting the most vulnerable segment of the population, which is mostly prepaid as they were getting less minutes for the same money they used to spend in top-ups.

The Competitive Intelligence Unit estimates that some 30mn people in Mexico still do not have mobile telephony, and the prediction is that Mexico has the potential to reach penetration of some 110%.

“Those 30mn who have yet to sign up haven’t done so because they don’t have the purchasing power – not for lack of interest,” Piedras said.

“It’s not about not paying [taxes]. The telecoms sector pays many other taxes on income, social security, consumer taxes. It’s about the luxury tax,” he added.

Piedras said he was confident the petition would not fall on deaf ears, as a broad range of actors – from academia, the public and private sector and even lawmakers – have signed the petition.

Reference: Business News Americas

Comments are closed.