Look before you tax

The Internet growth story has just taken off. Govt mustn't do anything to weigh it down

Should a self-sustaining boom be busted by a tax? The department of telecom will levy a licence fee of 4 per cent on Internet service providers and double it to 8 per cent by the time of the next budget. Passed on to consumers, this levy will slow the rate of Internet adoption. This year, India is projected to become the third biggest Internet market in the world, after China and the US. And yet, less than 10 per cent of the population has Internet access. This growth story has just begun, it is based on cheap access and it needs all the breaks it can get. Perhaps these concessions would not be in the interest of immediate revenue generation but in the long term, they would certainly be in the national interest.

Further growth is likely to be fuelled by expansion in mobile Internet, which is picking up as growth in fixed line Internet services tapers off. Mobile access accounts for almost 50 per cent of Web usage, up from 2 per cent in 2009. Since mobile Internet runs on cheap hardware and does not need reliable power supply, this suggests that growth is being driven by users in places where the infrastructure does not work as advertised. The most significant growth is probably in small towns and villages, not the big cities.

Information is power and a rural information revolution would have implications for politics, society, the economy and development. It would facilitate growth and shift the balance of power away from the cities. The benefits are evident and a tax would reverse them by discouraging adoption by the less privileged. If the government needs the revenue, it should collect it from tax hikes in unproductive sectors, perhaps tobacco.

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