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NZ telcos wince as they foot bill for more UFB
Posted on 30-Sep-2014 18:14 by Bill Bennett. | Tags Filed under: News.

One of the National Party’s election promises was to extend the government’s Ultrafast Broadband network. Originally the plan was to spend $1.5 billion to cover 75 percent of the population living in cities and towns. Now the government aims to spend another $150 million to $200 million reaching an extra 200,000 people for a total of 80 percent of the population.

It’s a good idea and solves the problem of connecting people living in medium-sized places not reached by the earlier UFB plan or the Rural Broadband Initiative.

Government isn’t planning to use taxpayer funds for the extension. Instead it will extend the Telecommunications Development Levy for three more years.

Although the name suggests otherwise, the TDL is effectively an extra tax on telecommunications companies. They collectively pay $50 million a year into a fund to pay for the RBI. It replaces an earlier levy collected to compensate Telecom NZ (now Spark) for maintaining a universal telephone network reaching rural customers that would have been commercially unprofitable to serve.

The Commerce Commission gets to decide how much each telco pays into the levy based on calculations about their relative market share. Chorus, which isn’t a retail telco, also pays into the fund.

In some ways the fund is an unfair imposition on telcos. New Zealand’s carriers have faced falling revenues in recent years as competition bites. The effect of earlier government imposed regulations also eat into their margins.

At the same time, New Zealand’s telcos are losing revenues to giant multinationals like Google and Apple. These companies offer so-called over-the-top services that let people make calls or send messages bypassing traditional carrier networks.

There are a number of ironies here. While Google and Apple make a lot of money in New Zealand, they barely pay any taxes. Like many multinationals they claim their local sales are actually made elsewhere — usually Ireland. Meanwhile, New Zealand’s telcos do all their business here and have little opportunity to transfer sales to more favourable tax regimes.

So, in effect,we tax telcos twice while the competitors who are eating their lunch are barely taxed at all.

One proposal would be to compel companies like Google and Apple to contribute to the TDL. There’s a good case to make for this although because they don’t charge for telecommunications services, as such, it would be difficult to fix a fair sum.

It’s worth keeping in mind that should Google or Apple be taxed on New Zealand sales to the same extent as the telcos the extra revenue would be greater than the amount raised by the TDL.

New Zealand’s government doesn’t have the clout to unilaterally change the way large multinationals shuffle money between countries to avoid taxes. If they paid up we could afford to extend the UFB network and pay for other essential services. That’s not going to happen, but it might be an idea to put some of our best brains on to finding ways to squeeze them for TDL contributions.

Filed under: telecommunications Tagged: government, RBI, UFB

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