New taxes on Lankan telcos negative for the industry, Fitch says
Sri Lankan telcos will pay one of the highest taxes as a percentage of revenue among Asia-Pacific telcos if the new budget proposals are enforced from April 1, a rating agency said on Tuesday.
Fitch Rating Sri Lanka said SLT and Dialog will pay about 28 per cent and 36 per cent (2014: 12 per cent and 17 per cent) of their respective 2015 revenue in taxes, fees and levies. This is much higher than the case for India’s Bharti Airtel and Indonesia’s PT Telekomunikasi Indonesia (BBB-/Stable), which paid about 20 per cent and 17 per cent of their 2014 revenue in similar taxes and levies to their respective governments, the agency said in a statement.
Sri Lankan telecom companies are in discussions with the authorities over the issue, industry sources said.
Fitch said the interim budget has proposed a one-off “super gains” tax of 25 per cent on profit, and a tax of Rs. 250 million (US$1.8 million) on each mobile operator. “The proposals also shift the burden of a recurring telecom levy of 25 per cent and 10 per cent on prepaid voice and data revenue, respectively, onto telcos from consumers; operators can no longer pass these taxes on to consumers, as changes in retail prices require approval from the telecoms regulator,” the agency said.
Fitch said the one-off and recurring taxes on the sector raise regulatory risks and would lead to lower profitability and higher financial leverage for Sri Lankan telcos.
Referring to the impact on Sri Lanka Telecom and Dialog Axiata, Fitch said of the two, Dialog will be more affected as 38 per cent of its 2014 revenue came from prepaid services, compared with 21 per cent for SLT. Dialog will also pay Rs.1 billion as the sole DTH operator with over 50,000 subscribers.
“A shift in the burden of the 25 per cent telecom levy from consumers to telcos is likely to incentivise consumers to increase voice and data usage. However, we think that this increase will be only gradual – and insufficient to offset the impact of the absorption of the telecom levy,” it said.
“Smaller, loss-making telcos including Hutchison Lanka and Bharti Airtel’s fully owned subsidiary, Airtel Lanka, may consider exiting the industry as most of their revenue is pre-paid. We believe that market leaders Dialog and SLT could acquire the smaller operators to reduce price-based competition and consolidate spectrum assets. Sri Lanka’s telco market is one of the most overcrowded markets in the world, with five mobile operators serving a population of 21 million,” the statement said.