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Telcos meeting due over tax

Telcos meeting due over tax

091013_10
Beeline announces its “Super Zero” tariff in Phnom Penh last month.

Companies in the Cambodian telecoms sector say recent government warning on tax remains ambiguous ahead of meeting on Friday with ministry officials

You have to be able to offer discounts if you want to sell something.

MOBILE-phone operators say they are due to meet with the telecoms minister Friday to discuss a ministry warning last month over pricing and interconnection policies that it said were destabilising the sector and eroding government revenues.

The meeting is expected to centre on tax implications in an inter-ministerial circular on measures to “prevent unfair competition in the telecommunications sector” that many operators have deemed unworkable.

The circular, signed by Minister of Economy and Finance Keat Chhon and Minister of Posts and Telecommunications So Khun on September 29, was issued without passing through the Tax Policy Department at the Finance Ministry, the Post has learned. According to a source within the ministry, the circular was prepared at the highest level.

Operators and tax experts have privately expressed surprise at the speed with which the circular was prepared and the ambiguity of the wording, which they say does not appear to be based on either existing tax laws in the country or international tax practices.

The circular also required operators to abide by the ruling from the date it was signed. One operator said that even if the requirements in the circular were clear, and the proposed tax regime enforceable, it would have been impossible for companies to amend their calling plans, promotions and advertising campaigns so quickly.

According to interpretations of the circular by operators and tax experts, the finance ministry is considering taxing companies on minutes talked rather than revenues generated. The circular said that offers of “free calls” within networks or calls across networks at a price “lower than the one fixed by the state” robbed the government of tax revenues. It added that “a number of telecoms operators will certainly not escape the obligations to pay taxes and various other revenues at the end of each fiscal year”.

Serious ministry warning
Though operators consider the suggestions in the circular unworkable, one tax adviser, who requested anonymity, has warned operators that the ministry’s warning “should be taken seriously”.

In a tax pointer released last week, the adviser wrote that the circular raised some “interesting and worrying” questions of interpretation and application of the Cambodian tax law, particularly the reference to free and low-cost services.

“The legal basis is somewhat untested, but there are indeed provisions in Cambodian law that may pose some concern to taxpayers, particularly in VAT and Specific Tax,” the tax pointer said. “More importantly, it is not impossible that the [Ministry of Economy and Finance] would introduce minimum values or reference values as a basis for taxing certain services.”

The introduction of such a policy would rule out almost all promotional efforts, including SIM card giveaways, discounted handsets, free minutes and capped calling plans, meaning every operator in the country, with the possible exception of Hello, is likely to already be in violation.

Simon Perkins, chief executive officer at Telekom Malaysia International (Cambodia) Co, which operates the Hello brand, acknowledged that the circular could have been worded less ambiguously but said he was confident the company was in full compliance.

“There are no real tax implications because we abide by their guidelines,” he said, noting that the company had a set price for every minute talked.
“The idea is to keep the tariff rate simple and clear,” he said. “What you see is what you get.”

However, Smart Mobile CEO Thomas Hundt said the circular, as it was worded, would reduce the ability of operators to compete freely for customers.

“In Cambodia, you have to be able to offer discounts if you want to sell something,” he said.

Mobile-phone taxes worldwide are calculated on revenues, not minutes, he said, adding that it would be very difficult for the ministry to set a baseline for taxes on services rather than revenues.

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