C O N F I D E N T I A L SECTION 01 OF 02 DHAKA 003178

SIPDIS

EB - AMBASSADOR DAVID GROSS; EB - ANDREW HYDE

E.O. 12958: DECL: 07/06/2015
TAGS: KMCA ECON KSCA ECPS EFIN ETRD PGOV TSPL BG
SUBJECT: CELLPHONE CONNECTION TAX CHOKES SECTOR GROWTH


Classified By: A/DCM D.C. McCullough, reason para 1.4(d).


1. (SBU) SUMMARY: The BDG has attempted to squeeze private
cellphone providers with a new tax on SIM/RIM cards. The
four largest cellphone providers, already in control of the
most lucrative portion of the cellphone user market, have
balked, leading to a new tax that will be passed along to the
consumer, putting telephonic connectivity further out of
reach of the average Bangladeshi. END SUMMARY.


2. (SBU) Until June, the BDG had an import duty on cellphone
handsets of 1500 taka (USD 25). However, they only collected
the tax on about 10 percent of the handsets imported into the
country due to a healthy gray market. The ease of
circumventing this tax put handsets within the economic means
of a fairly large portion of the Bangladeshi population,
leading to the rapid spread of phones throughout the country.
GSM phones were the most popular gray market imports, making
GSM network providers the option of choice for consumers.
The illegal spread was so helpful to GSM providers that the
head of CityCell, the only CDMA-based provider in the
country, admitted to EconOff, before removal of the handset
tax, that he was working to create a gray market for CDMA
sets.


3. (U) On June 9, the BDG in its new budget opted to lower
the handset tax to 300Tk but announced a new tax of 1200Tk
(USD 20) on SIM and RIM cards, which allow a cellphone to
connect to the service provider's network. This puts the tax
burden at a stage where it directly impacts the network
providers.


4. (U) In an atypical display of unity, the four largest
cellphone service providers (GrameenPhone, Banglalink,
CityCell, and Aktel) attempted unsuccessfully to lobby the
BDG to remove the "connection" tax on SIM and RIM cards.
They spoke with the National Board of Revenue (NBR); the
Bangladesh Telecommunications Regulatory Commission (BTRC);
the Ministry of Post and Telecommunications (MOPT); and
Saifur Rahman, the Minister of Finance (FinMin).


5. (U) According to the Big Four, in the absence of a 1200Tk
SIM/RIM card tax, the cellphone market could be expected to
grow 400 percent per year faster than with this tax. If
taxes on the purchase of a cellphone and its components were
kept at 300Tk, the average Bangladeshi would be more likely
to be able to pay the tax and would therefore be more likely
to actually do so. The Big Four pointed out that if the
cellphone market were allowed to grow at the higher rate and
the government collected no SIM/RIM "connection" tax, the BDG
would, in fact, collect approximately 2.95 billion taka more
than otherwise, via the VAT tax, the 300Tk handset tax, and
taxation of the additional net profit of the cellphone
service providers. The Big Four also made note of the fact
that, with a more affordable SIM/RIM card, an additional 15
percent of the total population would be able to purchase
cellphones.


6. (C) The NBR reportedly was willing to remove the
connection tax. However, GrameenPhone CEO Erik Aas told
EconOff that the Finance Minister did not respond positively.
He stated that "clearly, for (Rahman), it was personal,"
implying that he was making money off of the SIM/RIM tax. As
a concession to the Big Four, the BDG decided to lower the
SIM/RIM tax to 900Tk. This level of taxation is still likely
to be a significant obstacle to cellphone ownership for the
majority of the population.


7. (SBU) Aas also explained that it was his impression that
the BDG was hoping that the Big Four cellphone companies
would, in the name of profit, essentially subsidize
Bangladeshi consumers and pay the SIM/RIM tax for them. As
the Big Four do not expect the remaining section of the
impoverished population to be lucrative customers, it would
not make business sense for them to invest an additional 13
USD (900Tk) in each new customer when it already costs them
100USD in hardware and network preparation to set up a new
account. He offered no opinion on whether other members of
the Big Four would eventually change their mind on
subsidizing the 900Tk to win market share.

CHAMMAS