Taxes on cellular phones

Taxes on cellular phones

We find it difficult to understand that while inadequate
telecommunications is one of the weak links in Indonesia's
economic development the government still imposes a luxury tax on
mobile phones. In the second half of the 1980s, when the cellular
technology was first introduced in the country with the launching
of the Nordic Mobile Telephone-450 system, the handphone might
well have been seen as a luxury toy for the rich and the yuppies.

As Adi Rachman Adiwoso of PT Satelit Palapa Indonesia said on
Monday, government taxes and levies, which amount to 182.50
percent of the imported prices of cellular phones, are
responsible for the slow sales of mobile phones in the country.
Indeed, even though Indonesia was the first among the ASEAN
countries to introduce the cellular technology, the population of
its wireless phones remains much smaller than in its neighboring
countries.

We think the taxation policy regarding mobile phones is not
only irrelevant now, but that it is also inimical to business
development. Instead of being a luxury accessory for conspicuous
consumption, the handphone has now become a business necessity,
especially for Indonesia, which pursues an export-led strategy of
economic development.

In fact, the geographical and topographical conditions of
Indonesia as the world's largest archipelagic country require a
two-track development of telephone services -- wireless and the
conventional phone systems.

First of all, not only it would be rather impossible for the
state domestic telecommunications monopoly, PT Telkom, to wire
all the major islands for service, but the company is simply not
capable of meeting the demand for new phone connections. PT
Telkom has been cooperating with several private investors to
speed up the expansion of phone networks in major cities through
revenue-sharing contracts, but even this crash program is not
adequate to meet the backlog in orders. Waiting for a land line
to be installed remains a frustrating experience for many people
living in major cities.

Besides a lack of investment financing, there are several
other obstacles faced by PT Telkom in expanding its phone
networks. One of them is the red tape for obtaining land
excavation permits for laying cables. Another severe handicap is
the complex procedural process for land acquisition. Also, the
number of qualified contractors is simply not enough to meet PT
Telkom's orders for installation jobs.

Therefore, the development of wireless phones is essential to
fulfill the rapidly growing demand for phone services. After all,
the government has allowed at least three companies to run mobile
telephone services in a joint venture with PT Telkom. We don't
think mobile phones will compete head on with PT Telkom's wire-
line service even though the wireless phone operators will
eventually be able to lower their service charges as economies of
scale improve.

Moreover, as PT Telkom has written off many of its initial
network investments, while the mobile phone operators are still
spending heavily on expanding their coverage, its wire-line
service will remain cheaper than those using the cellular
technology as long as it continues to improve its efficiency and
the quality of its service. Therefore, we don't see any point in
protecting PT Telkom's conventional phone service by imposing
exorbitant taxes on cellular phones. Even such countries as Laos
and Cambodia, where the business sectors are as not developed as
they are here, have leapfrogged from the manual phone to the
wireless system.