How telecom is being turned into a cash cow

The budget process-2018 has started in Ukraine. The Cabinet of Ministers has sent a draft budget to the deputies. The draft budget is full of unpleasant peculiarities awaiting the ICT industry.

Unfortunately, the industry, which is already one of the largest taxpayers in the national budget, is still treated as a cash cow. It is intended to increase the rent for the use of radio frequency resource (RFR) by 11.2% again. The RFR issue is almost 20 years old. For the first time it was legislatively fixed in 2000, and in 2015 it acquired the status of a separate tax. Ever since its introduction the fee increased 12 times.

For the past three years we have been actively talking about working on reducing the technological gap with Europe. Once the increased rates are adopted, the process will start moving in the opposite direction. “Thanks to” this fee Ukraine is neighboring Gabon, Tanzania, Nepal, Rwanda and other 31 similar countries that also have an additional fee for telecom services.

The next rate increase for telecom services means a significant reduction in investment in the development of new technologies and the construction of new networks – including 4G. This will also affect business environment, will result in a reduction of the costs spent by operators on performing their social functions, including the provision of communication between sparsely populated and depressed regions. The population will feel the increase in the cost of voice and mobile Internet services.

Since 2015, from the moment of payment for 3G licenses, and until the end of 2017, operators have paid a fantastic amount of money for RFR to the state budget – over 13 billion hryvnias. Of these, 9 billion hryvnias – for 3G licenses, 2.4 billion hryvnias – the rental fee from the largest mobile operators, 2.1 billion hryvnias for the conversion of RFR in the implementation of 4G. The saddest thing is that the funds received from the rent cannot be used in the interests of the RFR sphere, for example, for radio frequency monitoring. In fact, rent for RFR is an additional tax imposed on the ICT industry.

In their desire to rob the business those who determine the interest rates forget that it is not necessary to reinvent the wheel, we can simply use the experience of European countries. Regarding RFR rates, in Germany, for example, the fee is paid once when the license is issued. And in Finland the spectrum is sold for €1 and annually the operator pays a percentage from the profit for using RFR. Everything is transparent and understandable.

It is high time Ukraine created investment-attractive conditions for the development of new technologies and services based on mobile communications. Communication is good. Not to use all the possibilities of modern mobile technologies is bad.

Another issue is the loss of VAT when exporting services. Receiving revenue from international communication services, transit of traffic and roaming, which is equivalent to exporting services, operators lose part of the VAT-credit. This, in turn, increases the cost of services. Therefore, changes to the Tax Code are also necessary due to the fact that the exporters that transport their goods and services internationally have 100% VAT-credit, while the ones in telecom services – 75-80%. In money equivalent, operators lost 440 million hryvnias last year, and they are going to lose 20 million more by the end of 2017.

In accordance with the international and national legislation, the principle of neutrality applies – all suppliers of goods and services must be on equal terms. In Ukraine at the moment, there is a zero rate for the export of goods, and enterprises have the right to a tax credit in full. With regard to imports, the zero rate applies only to certain types of services: international transport, servicing of the aircraft performing international flights. Telecom, which is a transport network for signal transmission, is not on this list. So, it has no right to apply the zero rate and loses the tax credit.

It’s a shame, because the fact is that Ukraine has a favorable position for the development of international traffic transit, and this means millions of investments from the construction of communication hubs and data centers. But because of the situation with the tax credit, our operators are not really interested in developing this export direction. In addition to direct losses of operators, this also results in a reduction in the flow of currency earnings to the country, and the investment attractiveness of the industry as a whole decreases.

Another issue that is being actively discussed now is a common-European roaming. But unless amendments are introduced into the Tax Code, Ukrainian operators will not be interested in reducing tariffs for roaming services. In addition, the state thus has deprived itself of tax revenues from the increased incomes from international communication and transit services.

Summing up, I would like to say that the work on the budget is conducted mechanically, with no strategic approach, with the sole intention of increasing the amount of revenues by means of the taxes the business is forced to pay.

The shortcomings of the tax system and unreasonable additional fees will only have one consequence – the operators will no longer be interested in the development of technologies in Ukraine. And these are not just empty words. Global telecommunications groups have already abandoned the creation of international telecommunication hubs in Ukraine and moved them to the Netherlands, Kazakhstan, and England.

As a result, Ukraine lost currency revenues to the budget, Ukrainian specialists lost high-quality and well-paid jobs. And our country is on the edge of being excluded from the list of the states that are attractive for the development of the technological business. Therefore, with all responsibility I will say that unless the problems described above are resolved, the digital inequality between Ukraine and the world will increase even more.

That is why we are going to do everything possible to make sure that in 2018 Ukrainian telecom industry will cease to be a cash cow, and will become an investment-attractive industry not only for its own country, but for the world as a whole.

Oleksandr Danchenko
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