Doing things the hard way: The issue of phone taxes

A post by Kemalettin Bulamacı on LinkedIn caught my attention the other day. The post referred to the text of the Information Technology Agreement (ITA), which was published in the Official Gazette dated February 9, 1998, and numbered 23253. Upon re-reading the text, an interesting distinction caught my eye again: the difference between customs duties and internal taxes.

This distinction actually lies at the heart of the debates currently taking place in Turkey surrounding phone prices.

Customs duties and internal taxes are not the same thing

The logic of the ITA agreement is quite clear. World Trade Organization members agree to eliminate customs duties on the import of information technology products. However, this obligation applies only to customs duties.

For internal taxes, a different principle applies: "National Treatment."

According to this principle, a country cannot impose a higher internal tax on an imported product than it does on a domestic product. However, taxes applied at the same rate to both domestic and imported products—such as VAT or SCT—are not considered customs duties and are not prohibited under the ITA.

In other words, even if states have legally abolished customs duties on the import of technology products, they can still impose other burdens that affect the price through internal tax mechanisms.

Sources:

WTO (1996). Information Technology Agreement Ministerial Declaration.

Republic of Turkey Official Gazette, February 9, 1998, Issue: 23253.

The tension in the phone market

There is actually a much simpler issue in the background of the debate in Turkey.

Phone retailers have long been uncomfortable with phones brought in from abroad. This is because the same device is often cheaper abroad.

Naturally, this situation affects sales in Turkey.

The sector communicates this discomfort to the state. The state, in turn, implements various tax and fee mechanisms to maintain balance in the market.

However, the result that emerges here is quite ironic.

Consumers who do not buy phones from abroad and instead go to a store in Turkey to buy one end up paying the same tax burden.

In other words, the system reaches this point:

When elephants fight, the grass gets trampled.

The source of the problem is limited market behavior. But all consumers pay the price.

Yet the solution is much simpler

In the world of technology, this problem was actually solved years ago.

The name of the solution is the operator model.

In most of the world, people buy their phones within operator packages instead of buying them directly from a store.

The model is simple:

• The operator sells the communication service

• It includes the phone in the package

• The user pays for the device in installments with their bill

Thus, the consumer purchases the hardware and the communication service together.

This approach solves three problems at once:

1. Device access becomes easier

2. The financing burden is distributed

3. Market balance is established through the service model, not through taxes

This system has been working for years in many markets, from the USA to Europe.

In Turkey, however, the debate is constantly conducted through taxes.

The real question

Today, when talking about phone prices, everyone asks the same question:

Why are phones so expensive?

But the real question that should be asked is this:

Why do we continue to think of a phone as a product sold on its own?

If operators were to establish a widespread bundle model by including the device in the package:

• consumers would buy phones more easily

• the market would be balanced

• the state would not have to constantly deal with new tax debates

In technology policies, the problem is sometimes not complex.

The problem is insisting on not seeing simple solutions.

Sometimes you really just need to do this:

Stop doing things the hard way.