Bangladesh tele­coms caught up in $500 mil­lion tax row

Kuwait Times - - BUSINESS -

By govern­ment ac­counts, four for­eign­backed cell­phone op­er­a­tors owe $500 mil­lion to Bangladesh in un­paid taxes. By the com­pa­nies’ ac­counts, the fig­ure is closer to $50 mil­lion - if it isn’t zero. As the le­gal row drags into its fourth year with­out res­o­lu­tion, telecom­mu­ni­ca­tions an­a­lysts warn it is putting pres­sure on the in­dus­try that is Bangladesh’s sin­gle largest source of rev­enue, pro­vid­ing $1.43 bil­lion in tax rev­enues in 2015. Govern­ment reg­u­la­tors say the com­pa­nies broke the law by sell­ing old SIM cards with­out prop­erly no­ti­fy­ing reg­u­la­tors, and then failed to pay taxes on those sales from July 2009 and De­cem­ber 2011. They also al­lege the com­pa­nies con­cealed cus­tomer in­for­ma­tion to ob­scure the is­sue, ac­cord­ing to govern­ment le­gal doc­u­ments on the case.

The four com­pa­nies - Nor­we­gian Te­lenor’s sub­sidiary Grameen Phone; Egypt’s Oras­com Tele­com’s Banglalink; Robi, the MalaysianJa­panese joint ven­ture Robi Ax­i­ata Ltd.; and In­dia’s Bharti Air­tel’s sub­sidiary Air­tel - have re­jected the govern­ment’s de­mands, tak­ing the claim to the tax ap­pel­late tri­bunal. Both the govern­ment and its tax author­ity re­fused com­ment while the case is still un­der court re­view.

In­dus­try ex­perts say the stand­off may alien­ate com­pa­nies and spook in­vestors in this coun­try of 160 mil­lion peo­ple. Bri­tish-based Voda­fone is fac­ing a sim­i­lar case in In­dia, where au­thor­i­ties want $2.5 bil­lion in back taxes from an as­set pur­chase done be­fore In­dian leg­is­la­tion in 2012 made such deals sub­ject to tax­a­tion. Most of the 128 mil­lion mo­bile-phone sub­scribers in Bangladesh are cus­tomers of one of the four pri­vate com­pa­nies in­volved in the tax dis­pute.

“The govern­ment must think of the is­sue from the point of view that this is the largest for­eign in­vest­ment sec­tor in the coun­try,” said T.I.M. Nu­rul Kabir, who heads the As­so­ci­a­tion of Mo­bile Tele­com Op­er­a­tors of Bangladesh lob­by­ing con­sor­tium. “The in­dus­try is suf­fer­ing for this dis­pute.”Tele­coms com­pa­nies and their in­vestors are grow­ing more cau­tious about build­ing a ru­ral cell­phone net­work, said Abu Saeed Khan, a Bangladeshi telecom­mu­ni­ca­tion ex­pert who works as a se­nior pol­icy fel­low of the Colom­bobased LIRNEa­sia think tank.

“Busi­ness con­fi­dence is feel­ing the pinch,” he said. Khan said Asian reg­u­la­tors don’t un­der­stand how to ef­fec­tively tax tele­coms com­pa­nies, and end up go­ing back for more later. In Bangladesh, “the dis­pute in­volves some grey ar­eas from the reg­u­la­tors’ side ... and op­er­a­tors used these grey ar­eas for their own ben­e­fit.” The case erupted in 2012, when the govern­ment handed the four for­eign-backed sub­sidiaries the bill for back taxes to­tal­ing about $500 mil­lion com­bined. The taxes come from VAT charges of 100 Bangladeshi taka, or about $1.28, that cus­tomers pay when buy­ing ei­ther an old or a new SIM card, though sell­ing old cards tech­ni­cally be­came le­gal only in May 2015 when the tele­com reg­u­la­tor is­sued guide­lines for such sales.

The govern­ment says the tele­coms providers ne­glected to pay VAT taxes on old SIMS cards they sold long be­fore such sales were il­le­gal. The com­pa­nies do not deny sell­ing old SIMs, but say the prac­tice was not il­le­gal. They also con­tend the to­tal amount due from any tax anom­alies would not ex­ceed 10 per­cent of the govern­ment’s claim.

The $50 mil­lion court de­posit re­quired to take the case to the tax ap­pel­late court tied up com­pany fi­nanc­ing and was “a big bur­den for us,” said Taimur Rah­man, chief cor­po­rate and reg­u­la­tory af­fairs of­fi­cer of Banglalink, which claims a 25 per­cent mar­ket share and posted $158 mil­lion in rev­enues in the sec­ond-quar­ter of this year. The case has dragged on, stuck in Bangladesh’s painfully slow ju­di­cial sys­tem. In 2012, the tax court for­warded the is­sue to the rev­enue depart­ment for ne­go­ti­a­tion and set­tle­ment. For a year, noth­ing hap­pened. Reg­u­la­tors are ex­pected to float an auc­tion for the 4G spec­trum by the end of this year. In 2013, the com­pa­nies threat­ened to boy­cott the coun­try’s 3G spec­trum auc­tion un­less the tax is­sue was re­solved, prompt­ing the govern­ment to form a dis­pute res­o­lu­tion panel.

But three years later, noth­ing’s been re­solved. Reg­u­la­tors meet reg­u­larly with the tele­coms as­so­ci­a­tion, but nei­ther side has yielded. Mean­while, the court has post­poned hear­ings and urged the rev­enue depart­ment to re­solve the dis­pute, to no avail.

“We are still open to dis­cuss and find an am­i­ca­ble so­lu­tion,” said Rah­man of Banglalink. “We want to fo­cus on pro­vid­ing bet­ter and af­ford­able ser­vice to our sub­scribers, rather than fight­ing in court.” Both sides are now say­ing the is­sue needs to go back to a court.

“If the court gives us any di­rec­tion on the is­sue, we will just fol­low that,” said Sar­war Alam, sec­re­tary of the Bangladesh Telecom­mu­ni­ca­tion Reg­u­la­tory Com­mis­sion. — AP

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