Mobile phones, economic growth and taxation

By Tim Worstall | 9 July 2005

The Economist reports on the barriers to growth in mobile phone usage in poor countries. As we have noted here before, there is a connection between density of mobile phone ownership and the rate of growth in GDP.

One barrier to greater penetration is the taxation system, with countries finding tariffs on imports easier to collect than other forms of taxation (when people don't simply smuggle them onto the black market, of course) and telecoms revenues are similarly attractive in the ease with which they can be identified.

Uganda has just imposed a 10% tax on mobile phones. In Afghanistan, telecoms taxes account for 14% of government revenue, says Mr Kenny. In Bangladesh, the government has just imposed a tax of 900 taka ($14) on all new connections, in addition to an import duty of 300 taka levied on all imported handsets.

All taxes distort economic activity and part of the game is to find the rates and types of taxation which do so the least.

Mobile phones have become indispensable in the rich world. But they are even more useful in the developing world, where the availability of other forms of communication - roads, postal systems or fixed-line phones - is often limited. Phones let farmers check prices in different markets before selling produce, make it easier for people to find work, allow quick and easy transfers of funds and boost entrepreneurial activity. Phones can be shared by a village. Pre-paid calling plans enable phones to be owned without the need for a bank account or credit check. A recent study by London Business School found that, in a typical developing country, a rise of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points. Mobile phones are, in short, a classic example of technology that helps people help themselves. Governments of course need revenues. But mobile phones, given their effects on economic growth, should perhaps be given some slack.