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Cutting taxes on Argentina's mobile sector will lead to greater digital inclusion and economic growth, according to a new report by the GSMA.
The tax burden in Argentina (44% of mobile sector revenue) is very high compared to Colombia (16%), El Salvador (14%), Guatemala (11%), Mexico (19%), Peru (12%) and Uruguay (17%).
Taxation occurs at different levels of government (federal, provincial and municipal) and despite being considered a commodity, services are either hit with VAT for individuals or a luxury item rate for businesses. SMEs in Argentina make up 99.8% of the economy.
"Reduced affordability due to high levels of mobile-specific taxation is constraining the potential for further growth, particularly amongst low income groups who would benefit most from access to the mobile internet," said Sebastián Cabello, Latin America head of the GSMA.
In Latin America, Argentina has the second highest total cost of mobile ownership for a basic 500MB plan, equivalent to US$21 a month, and is third in the region in terms of the proportion of consumer taxes in the cost of mobile services, behind only the Dominican Republic and Brazil.
"Pegging a luxury tax on mobile telephony might have made sense in the 1990s when there were fewer than 1mn lines. Today with 64mn lines it's ridiculous," analyst Enrique Carrier told BNamericas.
"In addition, it goes against the principles of digital inclusion."
Taxes account for some 57% of the overall cost of a handset in Argentina, the highest proportion in the region.
Despite high unique subscriber penetration (92%), usage remains low compared to other countries in the region.
The GSMA underscores the secondary benefits of mobile connectivity, such as m-health and mobile money.
The report predicts that the removal of excise tax on mobile services and electronics would lead to over 3mn new subscribers and 60,000 new jobs.
This month, the business-friendly government of President Mauricio Macri submitted a major tax reform bill to strengthen the economy and tackle poverty. Argentina's tax burden has been described by treasury minister Nicolás Dujovne as "Kafkaesque".
Among the reforms is a proposal to eliminate the 17% tax on smartphones. Earlier this year, the government slashed the 35% tax on PCs and tablets.
The report suggests that reforms would be self-financing in terms of their impact on government revenues, showing a cumulative fiscal gain of US$5.3bn over five years by end-2022.
Argentina has caught up with its neighbors in the last two years in terms of 4G services after the government went over a decade without auctioning any spectrum.
Since then, the Macri government has introduced key measures to change that, including approving mergers and acquisitions, allowing telcos to start offering TV services starting next year and introducing a subsidized smartphone program.
Smartphone penetration as of 2016 was 53% and is forecast to grow to 73% by 2020.
As of 2016, some 17% of mobile users were on 4G networks and 43% were still on 2G networks.