Thirteen years ago Afghanistan as a war torn country had no telecommunication services. After the re – emergence of the telecommunication sector in Afghanistan and private sector investment, the sector has witnessed tremendous growth and became very developed.
Due to its rapid development in infrastructure, services, policy, legal and regulatory framework, the telecommunication sector has become a very reliable source of revenue to the Afghan government with annual revenue of around $ 200 million and approximately $ 2.4 billion investment in the economy of the country as of 2016.
Currently there are 23.21 million mobile phone users in Afghanistan and till the end of 2014, 90% of the residential areas have been taken under the telecommunication services and coverage.
In last 14 years Afghan government has been always financially depended on international community and United States aids, and they have been always working on to finding solution and resources to the critical financial challenges of the previous government and as well as the National Unity Government – NUG.
After the controversial election of 2014 and establishment of National Unity Government (NUG), the government body is considerably expanded and government spending is significantly increased.
Though international community and donor countries are still providing aids to the government. But the NUG is searching for reliable domestic sources of revenue to meet the financial needs and the leadership decided to levy 10% tax on the telephone subscribers.
Levied taxes will partially increase government revenue and it will give the Afghan government the opportunity to get a bit self reliant, fund its projects and find further domestic sources of revenue.
In contrast it will negatively affect the economy of household by paying 10% taxes while using telecom services. From the government perspective implantation of the levied law will not only increase the government revenue but it will also mobilize revenue from different sectors too. And at the same time this law could be also considered as an initial step toward further policy reform in the revenue department of the government.
However there are no exact statistics which can prove that the levied taxes will significantly increase government revenue but according to the Ministry of Communication and Information Technology (MCIT) in its first 10 days 80 million Afghani ($1.94 million) had been collected to the government treasury.
Taxes on telecom services are broadly accepted by masses and people are paying taxes for telecom services in all countries. But in return they get very high quality services and affordable prices from the telecom sector.
In Afghanistan telecom users have been always complaining from the poor services provided by the telecom sector, prices of telecom services are high and quality is not standard though. However since consumers are the burden of newly imposed taxes on the telecom sector, the government needs to control and monitor the telecom sector to provide quality services and develop a transparent taxes collection system.
Countries with similar experience of high taxes on telecom sector subscribers are concerned about the result of their policies toward telecom sector. Their experience shows that high taxes on telecom sector would slowdown the consumption of the mobile broadband among the customers who are already paying heavy taxes on telecom sector and multiple taxes on services.
Pakistan, neighboring country of Afghanistan has recently imposed 15% tax on telecom sector. The result of levying such high rate of taxes in Pakistan is 8% to 9% “decrease in the usage of mobile phones in terms of decreased minutes and mobile subscribers.
Comparing the tax rates in both countries and Afghanis appreciation than Pakistani rupee shows that Afghan government is imposing higher rate of taxes on telecom users than in Pakistan. While in Pakistan domestic calls are much affordable and services are provided with better quality than in Afghanistan.
Finally, since telecom services are price elastic, a relatively small percentage of change in the prices of telecom results in a large percentage of change in the quantity purchases.
The telecom taxes should be low and transparent otherwise imposing high rate of taxes on telecom service would result into another barrier to the deployment of telecom sector in Afghanistan. The best alternative to the National Unity Government – NUG would be to make revenues from increasing the utility and quality of services provided and generates tax income from the telecom companies rather than subscribers of telecom services. This policy will benefit the economy of household and will also encourage mobile subscribers in Afghanistan to take interest in services of next generation technologies and development of the country.
Zabihullah Mudabber is currently pursuing his MA in Economic Governance and Development at OSCE Academy, OSCE Studies, Bishkek Kyrgyzstan and is a former employee of the Ministry of Commerce and Industries of Afghanistan.
The views expressed by the author do not necessarily reflect the views and policies of the CSA BUSINESS.