Technology Taxes Come at a Steep Cost, Report Finds

Slapping taxes on information and communication technologies (ICT) can cost countries more money than it brings in, says a study released Monday by the Information Technology & Innovation Foundation (ITIF).

Most of the countries imposing high taxes are lower- or middle-income nations in Africa, South Asia and America.

The report’s release coincides with protests in Hungary over the government’s plan to tax ISPs at the rate of 150 Hungarian forints — 62 US cents — per gigabyte of data traffic.

Protesters depict the tax as one of several anti-democratic measures by the government that will deepen the digital divide in the country, restricting cash-poor schools and universities from Web access.

Some reportedly were steamed because they already paid value-added tax (VAT) on their computers and routers.

Still, the Hungarians can’t have it as bad as Bangladeshis, whose government adds nearly 58 percent to the cost of ICT goods and services on top of a universal 15 percent VAT.

“Reduced access to the Internet is bad for both political and economic reasons, and I think the protesters are motivated by both,” ITIF analyst Ben Miller told the E-Commerce Times.

“Basically, nobody protests because a policy is bad for economic growth,” Miller added. “They protest because they can see tangible downsides for themselves and others. In this case, the downsides they can see have been strongly linked to productivity growth on a macro level.”

Still, taxes on technology “typically only delay the development of the market, not the long-term trend,” Jim McGregor, principal analyst at Tirias Research, told the E-Commerce Times.

What the ITIF Study Posits

The ITIF looked at 125 tax and tariff policies around the globe and assessed their impact on ICT adoption and productivity growth.

ICT products and services taxed include mobile phones and plans, computers, broadband services and other electronic products.

Half the top 50 countries imposing taxes and tariffs on ICT products used in business are in subSaharan Africa; another 11 are from Latin America and the Caribbean.

Taxes and tariffs cut ICT adoption by more than 20 percent in Bangladesh, Brazil and the Republic of the Congo, and between 10 and 20 percent for 11 more countries, including Turkey, Pakistan, Ecuador and Argentina, the report estimates.

Overall, countries with the highest tax and tariff rates saw GDP growth fall between 0.7 and 2.3 percentage points per capita.

Governments should reduce taxes on ICT goods and services to the same level as those imposed on other goods and services, but abolish tariffs because they are discriminatory, the report recommends.

Other non-tariff barriers in trade that serve to raise the price of ICTs, such as domestic preferences for IT procurement, local data storage requirements and other protectionist measures, also should be eliminated, according to ITIF.

It Ain’t Just the Other Guys

Even the United States is imposing tariffs on ICT goods and services. For example, the U.S. International Trade Commission banned the sale of some smartphones and tablets made by Samsung during that company’s legal battle with Apple.

The commission recently ruled that data files come under its jurisdiction, sparking an appeal supported by the Internet Association, Public Knowledge and the Electronic Freedom Foundation.

Shuffling Priorities

The point might be raised that poorer nations have to invest in their infrastructure before investing in ICT, but “mobile technology makes power grid infrastructure far less important,” ITIF’s Miller said.

The potential in underdeveloped nations is “huge because they are producing so inefficiently, and better information can be truly transformative,” Miller continued. “For example, fishermen in developing countries are using mobile technology to better assess yield … and get weather information via text or phone messages.”

Hungary’s proposed tax on data “may kill the goose that lays the golden egg,” Rob Enderle, principal analyst at the Enderle Group, told the E-Commerce Times. “It’s something other countries hope you do, because it weakens you in respect to them.”

Richard Adhikari

Richard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it's all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon's Law still hold true? You can connect with Richard on Google+.

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