Philippines: Operators complain that a tax on SMS would discourage investment in mobile networks

[abs-cbn] The proposed tax on text messaging may push investors away from the Philippines, derailing economic recovery, according to telecommunications giant Smart Communications Inc.

In a position paper submitted to the National Telecommunications Commission (NTC) on Wednesday, the country's largest mobile operator said Quezon province Rep. Danilo Suarez's proposal to impose a P0.05 tax on short message service (SMS) is a disincentive to potential Philippine investors.

The proposal, Smart said, may give investors an impression that the government "punishes successful commercial investments through the tax on the perceived huge revenues of SMS providers."

"Our government should not send the wrong signal that would turn away prospective investors especially now that the global economy is in turmoil and the need to attract more investments in our country is much needed for economic survival," Smart legal and regulatory department head Roy Ibay said in the report.

In February, the Philippines received only $16 million in foreign direct investments (FDIs), an 82-percent drop compared to the $90-million receipts in the same month last year.

FDIs are considered a better vote of foreigners' confidence in the Philippines than "hot money," or those that are invested in listed shares or debt issues of local companies. These are usually invested in industries that create employment and spur downstream ventures, and helping lift long-term economic growth rates.

Among the factors that make the Philippines a laggard in FDIs are the cost of electricity, corruption, and other political shocks, as cited by business groups and foreign investors.

More users, higher GDP?

Citing a report, Smart said reducing taxes on the use of mobile phones leads to a 10-percent increase in mobile penetration rate, or the number of active mobile phone numbers within a specific population.

This, in turn, will lead to a 1.2-percent increase in the annual growth rate of a country's gross domestic product (GDP), as people are encouraged to spend more on mobile services, Smart said, referring to the report.

Smart was referring to the Global Mobile Tax Review (2006-2007), a report published by the GSM Association and Deloitte Consulting last year. The report explained the impact of tax changes on 57 different countries.

"Mobile phones are revolutionalizing the lives of millions of people and will continue to be the primary means for the great majority to access voice, data, and internet services. This report makes the case for addressing taxation policy and levels to support the extension of this essential franchise to the poorer sections of society," Smart said.

Earlier today, the government said the country's GDP grew 0.4 percent in the first four months of the year, the lowest since the 1998 Asian financial crisis.

Socioeconomic Planning Secretary Ralph Recto said the government may review the country's target full-year growth target of 3.1 to 4.1 percent.

Smart: Tax on text could drive investors away from RP