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.