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Bill Bennett


Spark, Vodafone, Chorus pay telephone tax

Spark, Vodafone and Chorus will pay almost NZ$44 million towards this year’s $50 million Telecommunications Development Levy.

The Telecommunications Development Levy is an extra tax paid by telecommunications companies. Each company pays a little over one percent of its revenue to subsidise rural broadband and finance other worthy but uncommercial services.

Spark is the biggest contributor. It pays almost $20 million. Vodafone pays almost $14 million and Chorus’ share is around $11 million.

The next two telecommunications companies, 2degrees and CallPlus pay around $3 million and $1.2 million. There are 13 other companies paying the tax. Between them, they pay about $2 million.

Companies have to earn at least $10 million from “telecommunications services” before paying anything.

Government set the Telecommunications Development Levy fund at NZ$50 million. Each of the contributing companies pays a proportion of the total depending on its share of all “qualifying revenue”.

Some of the money raised, NZ$2.6 million this year, pays for the Telecommunications Relay Service. This helps people with hearing problems use telephones.

The government sets a further sum aside for 111 emergency services. It spends the rest of the money on rural broadband.

A tax by any other name

Note how government charges the Telecommunications Development Levy on revenue, not profit.

That would be difficult because as a whole New Zealand’s telecommunications industry barely scrapes a profit.

Last year the five companies paying the lion’s share of the levy made a collective loss. This year the numbers are better, but not much.

Telecommunications is not a high-margin business and requires huge capital investment in infrastructure. Not least in paying the government to use the radio spectrum — which could be regarded as another form of taxation.

In practice companies pass the extra taxes on to telecommunications customers.

Free riders

There’s an irony here. While telecommunications companies pay extra tax, the companies, one might argue benefit the most from a nationwide broadband network, barely pay any tax.

Google and Facebook earn a king’s ransom selling ads to New Zealanders. Because they claim these sales happen elsewhere in the world the revenue they collect is effectively tax-free.

They wouldn’t be able to earn this tax-free income if it wasn’t for the likes of Spark, Vodafone, Chorus, 2degrees or CallPlus providing the networks. They get a free ride.

According to the IAB industry spent some NZ$200 million on interactive advertising in the third quarter of 2015. I

Even if the government can’t force these companies to pay their fair share of company tax, perhaps it could include their revenue in the Telecommunications Development Levy.



5 thoughts on “Spark, Vodafone, Chorus pay telephone tax

  1. Phrases like “Fair share” ring very hollow when the people you want to pay receive few of the benefits. It’s a kind of magic thinking that seems limited to the digital world. What tax for instance does Fonterra pay to the Chinese government for the roads over which our dairy exports pass?

    In fact the model for “pay us so you can reach our citizens” is very akin to the troll under the bridge ticket clipping that dominant telcos are rightly disparaged for. “Pay us so you can reach our customers” is mocked when customers have already paid to reach services that are not provided by the carrier.

    The facts don’t stop whinging from carriers about the profits of successful users of the service they are paid for by their customers. You can be sure no carrier wants to share the losses. Telcos who demean non-carrier services as Over The Top (get it?) might like to wake up to the fact that it is those services, the true information services, that attract customers to their commodity connections.

    Proposing tolls and levies beyond those appropriate is not something that NZ Inc would benefit from if other countries took the same stance viz our digital and physical exporters, say Fonterra and Xero.

    Bill and keep, as they say in the carrier world. You tax your citizens and we’ll tax ours.

    1. You make an interesting comparison.

      In New Zealand truckers pay a road user tax and fuel tax. I’m not sure how this works in China or if there is any road tax, but many western countries indirectly charge freight companies. They often have more road tolls than New Zealand as well.

      I’m not suggesting telcos charge the so-called over-the-top operators. In the US this thinking leads to the net neutrality argument. We don’t want that.

      Other countries are already moving to make businesses like Google and Facebook pay taxes on the business done in their countries. Just as Fonterra pays taxes to do business in other countries. It’s not that controversial.

      “Proposing tolls and levies beyond those appropriate” is in effect exactly what the Telecommunications Development Levy is all about. Let’s not forget Vodafone and CallPlus are overseas owned, 2degrees is mainly overseas owned while Spark and Chorus both have large numbers of overseas shareholders.

      1. The temptation to tax the successful foreign enterprise, who makes little or no use of the facilities taxes pay for is of course irresistible. It is unfortunately immoral. Either taxes are to pay for services, or they are a ransom, with NZ citizens being the prize. International tax regimes have their problems, but the simple notion that because you export to a country, as Google does to NZ, digitally or otherwise does not mean you pay income tax there.

        Microsoft et al, have been carefully managing their profit in NZ for years. By keeping the licensing/royalty “cost” folderol at the appropriate level to ensure minimal profit in their largely intangible product, they have never attracted this level of interest. Better lobbying one presumes.

        The TDL is of course a tax, an industry specific tax, called a levy. Network operators gain certain specific privileges which probably mean the TDL isn’t the worst cost they could face If you really want to frighten a carrier, suggest paying rates on their easements and cable corridors… Since the TDL is spent on further telecommunication expansion, it’s no worse to them than the “compulsory saving” of home buying. They get a let out with their shareholders, cry some salt crocodile tears about being put upon, and rural coverage and revenue improves.

        You wrote, “Telecommunications is not a high-margin business” which I would suggest should read, “Telecommunications is no longer a high-margin business.” And the losses you describe for the sector indicate the rate at which the incumbents are adjusting to the new regime is too slow. I hear rumours that a prediction* of less luxurious harbour-side accommodation is coming true.

        You note, “huge capital investment in infrastructure” is required. Handy then that the State plans to turn $1.5B three times through the UFB, and much, all even of the TDL comes back to the payers. Sounds like enough investment to be going on with, particularly when you can con a ludicrous price for sunk cost copper out of the regulator using some estimate of replacement cost (that isn’t going to happen.)

        High prices for spectrum, ah, well that too would be a tax if the rate wasn’t set by competition between the leading three to pay it. Competitive taxation, that’s a race I’d rush to lose. No, although it is an impost, it is indirect on the consumer (which for cellular services is practically the entire population, working or not.)

        In any case, if it turns out that passive infrastructure is not something the private sector can made a living (not a rentier fortune) at, perhaps it’s time to consider that part of the telecommunications stack to be a collective responsibility, as roads are.

        Built by the the private sector and owned by us all. Operated in a non-discriminatory manner by a tendered organisation with teeth and responsibilities, allowing all comers to make shared use of for their diverse purposes.

        A shared means to many ends, like what infrastructure is supposed to be.

        “the only telcos left will be the ones that realise this is the world they live in and cut their costs to match. No more marketing departments, downtown office complexes, expensive brand advertising etc… just quality network infrastructure that encourages customers to make the choice to use that network.”

        1. Transfer pricing — in effect multinational companies moving sales to low tax countries — has been around for at least 50 years. What has changed is the scale of the practice. When the likes of IBM did it in the 1970s they might avoid a hefty slice of the tax they might otherwise pay. Today’s companies like Google can avoid 90 percent or more of the taxes they might otherwise pay. I guess the Microsoft case you refer to sits somewhere between the two.

          The problem is compounded because some multinationals can also avoid GST — known as VAT or sales tax elsewhere. There’s a knock-on effect, local companies that do pay all those taxes are therefore at a price and cost disadvantage. These are complex issues best left for another debate save to say they are being addressed at an international level.

          Many regard transfer pricing as immoral, even if it is legal. In the UK even Conservative politicians use this language: http://www.telegraph.co.uk/finance/personalfinance/tax/9673358/Starbucks-Amazon-and-Google-accused-of-being-immoral.html.

          You’re right when you say the TDL is used to fund network expansion. In theory it pays the capital expense of expanding into areas that private companies would find uneconomic to service. In this sense it is a social good. If that network extension delivers extra customers to telcos, it also delivers extra customers and value to the likes of Google. It extends both networks.

          If Google, Facebook et al were to contribute to the TDL, their qualifying income would be around half a billion a year. On the current numbers that means they would pay around $5 million. About one million New Zealanders are covered by rural telecommunications – very round numbers here. So, in effect, Google and Facebook would be paying $5 a head to acquire new customers. That’s such a bargain it’s surprising they aren’t queuing up with chequebooks open.

  2. I’ve declined to pay the telco levy contribution that appears on my VF bill.

    I will be underpaying by exactly that amount each month, as I see no reason why I should pay VF’s liability.

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