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Of telecoms, taxes, operational challenges and unfair treatment
From: Ghana|Samuel Nii Narku Dowuona|ADOMBUSINESS          Published On: July 19, 2013, 16:00 GMT
 
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Of telecoms, taxes, operational challenges and unfair treatment

Mr. President, Ghanaians woke up on Tuesday July 3, 2013, two days after the 53rd Republic Day celebration to be told that your government has submitted a Bill in Parliament seeking to make Ghanaians pay for receiving international calls from family, friends and business partners in the Diaspora.

Already, the previous John Agyekum Kufuor NPP administration had burdened Ghanaian’s with six per cent tax on every minute of call Ghanaians make to both local and overseas numbers. That tax, called the Communication Service Tax, aka Talk Tax came to replace taxes on the importation of mobile handsets, leading to the influx of cheap phones into the country.

Now government has gone back to its vomit and brought back 20% import tax on handsets, which threatens to make the prices of handsets go up.

So in perspective, what government sought to do was to make Ghanaians pay for calls they receive from abroad and also pay more to acquire mobile handsets. But they have succeeded in doing only one because the other (taxes on incoming calls from abroad) received a gargantuan protest from the public, leading to the suspension of that disingenuously drafted Bill.

What the government has now done is to legalize a hitherto illegal double talk tax, which still threatens to shoot up call rates in the country. Already there was a 6% talk tax on all phone calls, which the telecom operators absorbed on behalf of their customers. But because of the interconnectivity arrangement between the telcos, they tend to pay that tax twice and government was aware but did nothing about it until now that they have rather legalized it to make it mandatory for the telcos to pay double tax on calls.

By way of explanation, the interconnectivity arrangement require that when one makes a call from MTN to Tigo, for instance, MTN would have to pay Tigo a termination rate of 5Gp per minute of that call, plus the 6% tax. So after MTN had borne the 6% tax on behalf of it customer and paid to government, it would also pay another 6% on each 5Gp to Tigo for them to pay to also government again. Clearly, this is double taxation and government has deliberately closed its eyes to it all these years, and now the new law has legalized the double taxation.

In addition to the double talk tax, government has also passed a law to place a 5% Stabilization Levy on the telcos and other sectors in an effort to raise money to stabilize the economy over the next 18 months.

The whole move by government to increase taxes and place taxes on some of the most unimaginable things have been received with grave contempt by Ghanaians; but what is most worrying is the seeming penchant to always want to burden the telecom industry with taxes, levies and charges based on the assumption that these are foreign companies, which have come into Ghana and are making and shipping millions of dollars out every day and are probably not contributing to the development of the country the way they are expected to.

Indeed when Haruna Iddrisu was Communications Minister, his posture towards the telcos was that of one seeking to get as much money from them for the state as possible. That could not be a sin as Ghana needs the taxes and levies to develop. But just before Iddrisu left office he admitted that the telcos were government’s only development partners who stood by government and advanced moneys to government in times of need and ahead of the tax period, to enable government balance its books.

If what the former Communications Minister said is anything to go by, then where is the justification in the several claims by some government officials and consumer rights activists that the telcos are making moneys and shipping them outside and not contributing enough to national development? And why would the Minister wait till he was leaving office before making that admission? It also raises questions as to whether politicians are being honest with their usual hostile comments about telcos.

But at least the Minister admitted the telcos are very important development partners when it comes to providing financial support to cushion the economy in times of need. Secondly, telecom is a utility service just like water and electricity. It is also an essential service, like health, security, water, electricity and others without which everything will come to a halt in this country.Today there are more active mobile phone lines than there are people in Ghana. That is testimony to how much Ghanaians depend on telecoms services and how much of an essential service is it. Indeed the contribution of telecoms to overall national development cannot be overemphasized.

It is because of telecom’s gargantuan importance to the country that Haruna Iddrisu bequeathed Ghana with a very dynamic regulator, the National Communication Authority (NCA), which has left no stone unturned in dealing with telecom operators when they default in service quality. The NCA has over the years instituted fines on the telcos, which lots of Ghanaians think are not harsh and deterrent enough, but at least the NCA has been consistent in fining the telcos for Quality of Service (QoS) breaches.

TELECOMS, WATER AND ELECTRICITY

What Ghanaians have failed to realize is that water and electricity are also gargantuan essential services and the managers of these sectors consistently fail to live up to the service requirement placed on them and yet none of them ever get fined like the telcos are fined consistently. The Energy Commission only goes as far as using the media to say that electricity supply cannot be off for more than 48 hours in a year without prior notice to consumers, so if the service providers default on that, customers deserve compensation. The truth is that the Energy Commission has sat by and watched regular power outages and has never before punished the service provider, neither has anybody been compensated for power outages. The least said about water shortage in this country the better, and yet the sector managers never get punished.

But there is wisdom in not placing such fines on utilities and essential services; these are services that the country cannot do without so the wisdom is to allow them to invest their resources to improve the service so the consumer would get better service, rather than a regulator fining them and using the money for its day to day administrative cost, while the service remain bad and the consumer continues to suffer.

In addition to the fines on telcos for poor quality of service, it seems local government institutions have also found it fun to just place huge charges on telecom operators for various permits. Meanwhile these local government agencies give similar permits to other profit-making organizations for peanuts.

For instance, in some cases where banks, as well as water, electricity, insurance companies pay peanuts for business operation permits, telcos pay more than 1000% more for the same permit. Again, telcos pay sometimes up to 700% more than water and electricity suppliers pay for permit to install underground cables/pipes to provide service. And in times of damage due to government projects, contractors pay for the repairs of cables/pipes belonging to the other utilities, while telcos are mandated to repair their damaged cables/fibre on their own, even though the damage was caused by road construction.

What is even more worrying is that even though telcos pay more for the permit to lay their cables and fibre, when it becomes necessary to relocate the cable/fibre due to road construction, the telcos are mandated to pay for the relocation, while the project contractors pay for relocating water pipes, and electricity cables.

Last year the telcos reported many incidents of fibre cuts mainly by road contractors. National Security has made arrangements to deal with the 'fight' between telcos and road contractors, but the problem of fibre cuts keeps rising, this time due to illegal mining (galamsey). Nobody assists the telcos to fix the damages and yet everybody, including yours truly, cry foul, and rightly so, when services are bad. Again the telecoms tower companies have applied for permits to install infrastructure to extend and improve services but thousands of those permits have not been granted. Some of them go zero permit the whole of last year, and other got only one out of the scores they applied for. And none of these government's permitting agencies get sanctioned for delaying permits, but the telco gets fined if service is not good.

These are obvious issues of unfair treatment to the telcos but government is very lackadaisical to address these issues. Meanwhile, government and its institutions are happy placing fines, charges, taxes and anything that has a name on the telcos just to collect money.
Taxes, inflation and profits
Of telecoms, taxes, operational challenges and unfair treatment

Due to low and stable level of telecom tariff, communication sector recorded lowest inflation in 2012: 0.6% in first to third quarter, but fell to 0.4% in fourth quarter. Meanwhile, prices kept rising at an increasing rate in all sectors


Mr. President, already, up to 37% of telcos revenues go into paying taxes. This is in spite of a price war, which has taken call rates down to an average of 10Gp per minute, compared to 20Gp in nearby Nigeria. Indeed, inflation in the telecom industry stood at a negligible 0.4% as against the national average of 8.8% in December 2012. That is how low prices for telecom service are. The telecom industry’s profitability trend shows that so far it is just one out of the six telcos, which is managing some profit after tax in the country. And even though government says with one side of its mouth that telecom is essential to the economy and a huge development partner, it uses the other side of the mouth to slap industry players with taxes, fines and levies that threaten to collapse the industry.

It has been said then and again that 10% growth in telecoms industry leads to 1.5% growth in the GDP of any country. That is how important the telecoms industry is to the economy. Indeed in 2010 the telecom sector contributed 10% to government overall tax revenue and impacted GDP growth by 2%. In terms of job provision, the sector is directly and indirectly employing over 1.5million Ghanaians. All those are under threat to the continuous piling of taxes, fines and arbitrary charges on the industry.

Very often, government officials and consumer right activist say that the telcos are making huge profits off of Ghanaians, but none of these people really provide hard evidence to support their claims. Assuming without admitting that the telcos are indeed making and shipping millions of dollar out of Ghana, one wonders what could be wrong about that, given that the money they invested in Ghana was equally shipped into Ghana from somewhere and those investors expect profit on their investment.

IMPORTED CAPITAL

Government officials go from Ghana to beg for loans around the world and it becomes debt for the state to pay with huge interests. In the same way the telcos have invested other people’s money and they are supposed to pay back with interests. In as much as the money they invested here is not money for Ghanaians, they have a choice to invest elsewhere, where there is promise of better profit, manageable taxes, lack of multiple and arbitrary charges and levies, and the opportunity to charge higher tariffs.

Sometimes government officials cite taxes being slapped on telcos in Europe and US and other developed countries to say that doing same in Ghana could not be wrong. But in their myopia, politicians seem to forget that the moneys invested in those countries are largely from pension funds in those countries, whereas the moneys invested in Ghana were imported capital, brought in from outside and can be taken out at anytime.

As a Ghanaian, Mr. President, I feel our government is getting it wrong piling up taxes and levies on the telecom sector, which we all agree is a utility and an essential service and a very important development trigger just like water and electricity, as opposed to luxuries like tobacco, alcoholic beverages and others. In my view, government is doing this with a myopic view of the situation – seeking to stabilize the economy and to raise taxes for development, forgetting that if telecom services go bad, like electricity and water, it affects the very businesses and people the government claims to be raising the taxes to help. Sometime you hear politicians say telcos must make voice services free of charge, and you wonder whether those politicians take into consideration the unfriendly operational environment telcos work and its impact on their investments.

Already, the telcos are cutting jobs heavily and government is not providing any jobs. The telcos are also slashing their budgets on several things like CSR and marketing promotions. These are all signs of gradual withdrawal of investment, and if this trend continues we may have ourselves to blame as Ghanaians in the long-term. Government needs to wake up to the reality and take a second look at its penchant for taking moneys from telcos and not pushing its agencies to provide the necessary assistance to the telcos to deliver on service quality. Thousands of permits are still waiting to be delivered to telcos to expand infrastructure and provide quality service. No one fines the government institutions who fail to grant the permit on time, but when the telecom service goes bad, the telco is fined.

Nobody can suggest for one second that Ghana has the best of quality telecom services, and we have and continue to hit hard at the telcos for the poor services. But it is equally not in the larger interest of the public to place huge taxes, fines and arbitrary charges on them, and collect the very moneys they are expected to use to improve their service quality. It is also unfair to fine telcos for poor services in areas where government agencies fail to grant permits to install infrastructure; or sometimes even citizens just stand in the way of telcos and stop such installation. We have to be fair to ourselves and realize that we can’t keep calling the telcos names without paying attention to the harsh conditions in which they operate.


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