TPRC 2024: The 52nd Research Conference on Communications, Information and Inter

Link to paper
Abstract:
Device affordability is one of the key barriers to Internet access and use in most low-and-middle income countries. Reducing and/or eliminating taxes on devices has emerged as a major way to make devices more affordable. However, the empirical evidence on the impact of reducing and/or eliminating tax on device access remains limited. To help fill this gap, this study estimates the impact of Colombia’s 2017 VAT exemption on smartphone penetration rates. Using the Synthetic Control Method (SCM) applied to country-level panel data from 2009 to 2021, our study finds that smartphone penetration in Colombia reached 66.8 percent in 2021. This represents an increase of 7.6 percentage points over the 59.2 percent level of its synthetic counterpart, equivalent to a 12.8 percent relative increase. These results were validated through placebo tests and other robustness checks. These findings confirm that reducing and/or eliminating taxes on smartphones improves smartphone penetration and contributes towards bridging the digital divide. The work can be extended by exploring VAT exemptions in other countries and reductions on other forms of taxes.