April 20, 2018

Mobile Industry Uniquely Positioned to Realize Bangladesh's Vision 2021 Goals

"The mobile industry in Bangladesh has scaled rapidly over the last decade to become the fifth largest mobile market in Asia Pacific, with 85 million unique subscribers in 2017 – half the population," GSMA notes in a country overview of the Bangladesh mobile industry. The London, England-based organization further says that "[b]y helping to promote digital inclusion and support the delivery of essential services, the mobile industry makes a vital contribution to the economy of Bangladesh and plays a crucial role in supporting the achievement of the government's Digital Bangladesh and Vision 2021 initiatives, as well as the UN's Sustainable Development Goals (SDGs)."

The GSMA country overview outlined several key findings, including:

Affordability can be major barrier to mobile uptake
  • A higher cost of mobile access will more greatly impact the poorest consumers, as it represents a higher share of their monthly income.
  • High levels of taxation and fees would directly raise the retail prices faced by consumers, and thus represent a significant barrier to digital inclusion.
A forward-looking regulatory environment is essential
  • Through review, reform and modernization of regulation in key areas, policymakers and the regulator in Bangladesh can play a major role in expanding access to and adoption of mobile broadband.
  • A predictable roadmap should be created for future assignments of spectrum (e.g. 700 MHz), in consultation with industry players to ensure fair and reasonable policies and regulations while also supporting effective pricing of spectrum.
  • Reforming mobile sector-specific taxation towards a more balanced and efficient structure can increase affordability of mobile products and services by lowering the tax burden on consumers and mobile operators
Spectrum barriers reduce operators' ability to invest
  • The February 2018 spectrum auction saw high auction reserve prices and associated licence fees, which resulted in some spectrum going unsold. This highlights the importance of setting reserve prices for future spectrum auctions that consider operators' ability to not only finance access to spectrum, but also to deploy infrastructure accordingly.
  • The government should ensure the timely release of spectrum and fair prices for access to that spectrum to facilitate better quality and more affordable services.
The report importantly notes the mobile industry makes a vital contribution to the Bangladeshi economy. "In 2015, the mobile ecosystem generated 6.2% of GDP in Bangladesh, a contribution that amounted to around $13 billion of economic value added. This figure includes the direct economic impact of mobile operators and the broader ecosystem as well as the indirect impact and the productivity increase brought about by the use of mobile technologies."

Moreover, "We expect that the economic contribution of the mobile ecosystem in Bangladesh will continue to grow. In value-added terms, we estimate that the ecosystem will generate $17 billion by 2020. This will be driven by a combination of productivity improvements brought about by continued mobile internet expansion (both in terms of coverage and uptake), as well as by the growth in content and services, which will bring Bangladesh closer to the development of the mobile ecosystem in neighboring countries."

Mobile continues to transform the lives of millions of Bangladeshi. "As more people come online over the next decade," the report explains, "the way they engage with mobile is changing as devices get smarter, services expand and societies become more connected, enabling seamless interaction between all aspects of an individual's digital life. Beyond core connectivity, the mobile industry in Bangladesh can provide services that are vital to the progress of a digital society."

Impact of Reforming Mobile Sector Taxation

The GSMA also commissioned EY to study the economic impact of potential tax reforms on the Bangladesh mobile sector. The report, Reforming mobile sector taxation in Bangladesh, analyzes developments in the mobile sector and its tax treatment in Bangladesh, and estimates the impacts of potential options for tax policy reform on the mobile sector, the wider economy and the government's fiscal position. The positive fiscal gains over a five-year period would be:
  • $29 million from the reduction of the corporation tax for non-public mobile companies from 45 percent to 40 percent and for public mobile operators from 40 percent to 35 percent.
  • $397 million from the elimination of the supplementary duty of 35 percent and VAT of 15 percent on SIM cards.
  • $397 million from the elimination of the supplementary duty of 5 percent levied on mobile services.
Based on these proposed tax reforms, the Bangladeshi government may face an initial cost in the first year following the reform, but ultimately, the reforms would be more than self-financing. They would also likely boost productivity, leading to higher GDP and taxation revenue in the medium term. By promoting investment, reducing the cost of mobile ownership and incentivizing usage, the tax reforms will help to connect individuals, particularly those in low-income groups, to mobile services.

What strategies should be implemented for government and the mobile industry to work together to unlock digital transformation for millions of Bangladeshi?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

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