Taxing Information, Communication Technologies Actually Costs Money, Study Shows
By Christine Kern, contributing writer
According to a study by the Information Technology & Innovation Foundation (ITIF), imposing taxes on information and communication technologies (ICT) can actually cost countries more money that it raises.
ICT is a driving force for productivity growth around the globe. Yet by imposing discriminatory tariffs and taxes on electronic and digital devices and services, many nations actually discourage ICT adoption by businesses and consumers. The taxes are levied with the aim of increasing government revenues and/or protecting domestic ICT producers, a move that is actually counterproductive.
The report examined 125 nations examined and found that 31 impose combined ICT tax and tariff rates of over 5 percent of product or service costs, (several adding more than 20 percent), while another 40 countries impose taxes and tariffs of between 1 and 5 percent.
The study found that while 68 nations add at least 1 percent to the cost of ICT goods and services, Bangladesh imposes the highest costs, adding 57.8 percent to the cost of ICT goods and services over and above the country’s universal 15 percent VAT. In second and third place are Turkey and the Republic of the Congo, which add 26.1 percent and 23.8 percent, respectively.
Fully one half of the top 50 countries for business-use ICT tax and tariff rates are from Sub-Saharan Africa, with 11 countries from Latin America and the Caribbean and the rest from other regions.
According to the report, these taxes and tariffs result in substantial decreases in adoption: more than 20 percent for Bangladesh, Brazil, and the Republic of the Congo; between 10 percent and 20 percent for 11 more countries including Argentina, Pakistan, Ecuador, and Turkey; and between 5 percent and 10 percent for another 18 countries. And studies indicate that revenue gains from such taxes and tariffs are often cancelled out over time because of reduced economic growth. Reduction in ICT adoption means reduction in economic growth. Overall, estimates point to yearly growth reductions between 0.7 percentage points and 2.3 percentage points of GDP per capita for countries with the highest tax and tariff rates.
The United States is also involved with imposing tariffs on ICT goods and services. The U.S. International Trade Commission banned the sale of some smartphones and tablets made by Samsung as a measure of support for Apple during their legal dispute, according to the E-Commerce Times.
Governments can enact tariffs on ICT goods in the mostly vain belief that it will spur domestic ICT production. But studies find that in most instances all these tariffs do is raise costs for other ICT-using industries, making them less productive and competitive, while doing little to spur the growth of a domestic ICT goods sector.
In its summary of the study, the ITIF states, “A clear way for nations to enable faster economic growth is to spur the use of ICT by businesses and consumers. And many can do this with the stroke of a pen: eliminating discriminatory taxes and tariffs on ICT goods and services.”