Sunday, July 3, 2016

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Telenor takes Government to Court on WHT by Karachi Chronicle

Refuses to pay withholding tax of $39.5 million | Paid WHT in the previous auction along with other operators | Never raised objection on WHT mentioned in Information Memorandum prior to auction
Telenor Pakistan moved court to seek concession in withholding tax over the contentious 3G/4G spectrum auction which was done in an unplanned way by the government when it was obvious that existing telecom players in the country at the moment are not interest in the said auction. 
In an attempt to mine the Telecom sector and to minimize budget’s shortfall non-tax revenue for the current fiscal year, PTA and the Federal government ill timed the 3G/4G auction when only one existing player was interested in bidding.
Telenor Pakistan has not only refused to pay withholding tax of $39.5 million of the total spectrum fee of $395 million for the 10MHz 4G license in the 850 MHz band, but has also filed a petition in the Islamabad High Court against the Government of Pakistan, Federal Board of Revenue and Pakistan Telecommunication Authority (PTA).
“Telenor moving a petition in court against the Government of Pakistan, FBR and PTA is very surprising since the said tax was already mentioned in the Information Memorandum of the 850MHz 3G/4G spectrum auction by the PTA. Before bidding, Telenor must have highlighted the said issue with the relevant authorities instead of crying foul or trying to strong arm the government. What is even more intriguing is the fact that not only has Telenor Pakistan benefited from the timing of the said auction because of lack of interest by other competitors but has been able to secure the license once again at base price,” claimed an FBR official, speaking on the condition of anonymity.
The said Information Memorandum on the Next Generation Mobile Services Award (NGSMA) could not be found on the PTA website although sources claim it was available on the website.
“All Telecom operators have previously paid the withholding tax at 10% so Telenor is no exception if it is being asked to do so,” explained the FBR official on condition of anonymity.
The Ultra High Frequency (UHF) spectrum of 850 MHz which has recently been auctioned by the Government, was expected to fetch around $700 million according to Finance Ministry estimates, however due to the odd timing of the auction and little interest Telenor found itself in an arm twisting position with the Finance Ministry, since the latter was keen to sell the spectrum by hook or crook to raise required funds for non-tax revenues for the current fiscal year.
“The negotiations took place with senior officials of the Finance Ministry, Telenor and PTA intriguingly at the Ministry where a certain senior government official refused to budge from the $395 million figure, while Telenor wished to pay not more than $350 but finally succumbed to the pressure piled on by the Ministry,” explained an official in the Finance ministry on condition of anonymity.
The Finance Ministry had however estimated earnings of Rs75 billion for the 3G/4G auction which was later sold to the solitary bidder for Rs42 billion. The other Telecom operators had not expressed interest in the said spectrum since Mobilink and Zong already had excess spectrum. These Telecom operators also highlight their concerns to PTA about the said auction through a letter.
In a joint letter written to the regulatory authority PTA, Ufone and Zong mentioned, “We are compelled to write to you for addressing a serious concern with respect to the paired spectrum in the 850 MHz proposed to be auctioned in June, 2016 and seek your support in addressing the matter in accordance with Section 6(a) of the Pakistan Telecommunication (Re-organization) Act, 1996. It is anticipated that, upon the award of the 2 X 10 Mhz of paired spectrum in the 850 Mhz band identified in the Information Memorandum (IM) [824-834 MHz (UL) and 869-879 MHz (DL)], the said band will cause severe interference on other license operators’ spectrum because separation between the two bands is very minimal and insufficient (i.e. presently it is only 3.5 MHz), resulting in serious adverse impact on the Quality of Service of affected operators. This shall adversely affect our subscribers, resulting not in loss of revenues.”
They further added, “Given the significant impact of 850 and 900 MHz coexistence on network performance and customer experience, presenting a very significant Capital Expenditure (CAPEX) challenge to all existing CMOs in Pakistan, timely intervention and assurance from GoP stakeholders, especially from the Authority is mandatory like that of Thailand where additional spectrum in 900 MHz is being introduced/auctioned in addition to existing operations in 850 MHz band. In the same spirit, it is hereby requested that the Authority make provisions to: a) make it obligatory on the new Licensee of 850MHz award to bear the cost that all operators have to budget against the CAPEX required for dealing with such interference; and b) give assurance to existing operators that in case of default, affected operators will finally be compensated from the auction proceeds.”

Industry analysts believe that the government could not only have raised a significantly higher sum had the auction been postponed to 2018/19 when licenses of major Telecom companies were set to expire but could have also ensured that the process was transparent. On the contrary the Government not only chose an awkward time for auction but also had to deal with a solitary bidder, and with only a ‘sole bid’ PTA had the authority to cancel the auction, a power that was never exercised.

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