The Institute of Telecommunications Law (IDET) calls on the Federal Executive branch so that, in the definition of the Economic Package bill for the year 2023 that must be sent to the Congress of the Union, no later than September 8, it backs a policy that promotes greater connectivity in Mexico.

Undoubtedly, one of the ways to move to a scenario in which a greater number of Mexicans can access the internet from their devices is the elimination of the Special Tax on Production and Services (IEPS) that since 2010 has been applicable to telecommunications services and that is in force despite being openly inconsistent with what is enshrined in the Magna Carta, from the constitutional reform of telecommunications of 2013, which establishes that the State is obliged to guarantee the right of access to Information and Communication Technologies (ICT), as well as telecommunications services, including broadband and internet.

The prevailing tax regime that taxes the various telecommunications services as if they were “luxury services” through the IEPS, by adding 3 percentage points to VAT, to reach a tax that amounts to a total rate of 19 per cent, was created from fiscal desperation that has led to distorting effects on the contracting and use of ICTs in Mexico, as well as triggering a decrease in the purchasing power of individuals and households, especially those at the base of the social pyramid.

This is a tax whose burden lies exclusively with consumers, which distorts the decisions to contract telecommunications services, as well as their consumption levels, and therefore negatively affects the demand for telecommunications services in our country.

The economic impact for users of telecommunications services due to the additional VAT burden represented by the IEPS amounted to a total of US$6.487 billion pesos in 2021, according to reports on public finances from the Ministry of Finance and Public Credit. (SHCP). Likewise, during the first half of 2022, the blow to the pockets of Mexican users for maintaining an additional charge to public services of general interest reached the figure of 3.405 billion pesos.

The shock produced by the pandemic and the lockdowns have shown that it is essential to have connectivity in homes and companies of all segments and markets to face the economic and social paralysis of the country. Likewise, numerous measurements have shown the marked positive social and economic impacts that the access and use of ICTs have on growth and development, in the generation of jobs, in savings in both public and private spending, as well as in tax collection, among many others.

Based on this, the IDET urges the Federal Government to move towards an effective public connectivity policy that, among other aspects, eliminates once and for all the ineffective and regressive IEPS on telecommunications, which artificially increases the prices of services and excludes the most disadvantaged segments of the population from its benefits.

The relevance of ICTs for Mexicans is exemplified by the marked economic efforts of millions of Mexicans to have not only the different services and applications available, but also smartphones that allow them to connect to the internet.

Although in the last three years there has been a positive migration in terms of mobile devices by users from a predominant low-end national market to one predominantly medium and high-end (75.3% of the total, as a whole), there is still a significant number of Mexicans unable to obtain equipment that allows them to carry out a multiplicity of productive, academic, entertainment, and social activities, among others.

The abolition of the IEPS on telecommunications would generate savings for users that would enable the choice and acquisition of higher-end mobile equipment. For example, the resulting savings allowed users of low-end smartphones (up to US$3,000 pesos) to upgrade to a mid-range smartphone (>$3,000 up to $10,000 pesos) at their next renewal.

This would result in a reduction of 10.4 percentage points in the proportion of ownership of low-end equipment, reaching a proportion of 14.3 per cent of the total, which is far from the 24.7 per cent registered in the first half of 2022, while the medium and high ranges would be strengthened and would reach 74.5 per cent and 11.2 per cent of all users, respectively, according to figures from The Competitive Intelligence Unit (The CIU).

In addition to the migration of current telecommunications users to mobile devices with higher capacities to multiply their activities on the internet, the elimination of the IEPS will also allow a greater number of Mexicans who today do not enjoy the benefits of ICTs and telecommunications services to finally have connectivity.

In short, the IEPS is an instrument that acts to the detriment of connectivity, which, far from helping to reduce the access gap, accentuates it. Its removal will be considered a big step in the right direction.

Due to the above, it is clear to IDET that it is time to eradicate the IEPS in telecommunications and build an appropriate fiscal policy for the development of the sector and ICTs in Mexico, which becomes, at the same time, an instrument to promote economic growth and promotion of social welfare.  This is a machine translation of the IDET release originally published in Spanish.