Bangladesh, a nation of 163 million people, has 156 million mobile connections, and while mobile broadband penetration is just 42 per cent, the rate grew by 33 per cent between 2017 and 2018.
The country is ranked tenth globally in population density and also has the distinction of being home to one of the steepest tax rates for mobile operators and consumers (in the top 20 worldwide).
It was ranked at number 152 in the world for its tax environment by the World Bank.
In addition to a 45 per cent corporate tax rate for private mobile operators, the government levies a 35 per cent supplementary fee and 15 per cent VAT on SIM cards, along with a 5 per cent duty on mobile services, the GSMA noted in a report titled Reforming mobile sector taxation in Bangladesh.
Despite having the highest corporate tax rate in South Asia (see chart below, click to enlarge), the levy accounts for ‘just’ 19 per cent of total tax collected. Regulatory fees are actually the largest source of taxation (36 per cent), followed by VAT (21 per cent). Consumer taxes represent 9 per cent, import duties 5 per cent and all other taxes 10 per cent.
Grameenphone, a subsidiary of Norway-based Telenor, reported in its Q3 earnings statement that its tax contribution in the first nine months of the year totaled BDT61.4 billion ($724 million), a staggering 57 per cent of total revenue.
Michael Foley, the operator’s CEO, said it operates in “a very challenging regulatory environment”.
Robi Axiata, a subsidiary of Malaysia-based Axiata, didn’t break down tax in its H1 earnings statement. For the first six months of 2019, it suffered a net loss of BDT586 million, on total revenue of BDT36.9 billion.
Adding to the many challenges of doing business in the country, the regulator claims the operators owe a combined BDT135 billion in unpaid taxes, following an audit commenced in 2017 covering their finances dating back as far as 21 years. Grameenphone’s shortfall amounts to BDT126 billion, while Robi Axiata’s is BDT8.67 billion.
The dispute has been lingering for nearly a year, with the Bangladesh Telecommunication Regulatory Commission (BTRC) throwing up various obstacles (demanding operators explain why their mobile licences should not be cancelled for non-payment and temporarily reducing their bandwidth) and the operators filing separate court cases seeking injunctions against orders to collect the fees.
While both companies have been able to mitigate such steps through legal means, they continue to face a suspension of receiving the certificates required to import equipment and software, as well as restrictions on seeking approval for new tariff and service plans.
As a direct result, Grameenphone’s network capex in Q3 fell to just BDT2.1 billion compared with BDT4.6 billion in the same period of 2018.
In mid-October, the BTRC significantly raised the stakes, announcing plans to appoint administrators to take over the operators’ financial, legal and engineering functions in order to collect the disputed tax claims.
An industry source told Mobile World Live (MWL) the warning was considered “creditable and would be tantamount to expropriation”.
Shortly after that threat was leveled, GSMA director general Mats Granryd sent a letter, which was shared with MWL by the source, to the Prime Minister’s ICT affairs adviser, urging the government to “ensure reasonableness with regard to BTRC’s increasingly punitive actions, allowing for room for mediation and arbitration for dispute resolution”.
Granryd added the GSMA is particularly concerned about news the BTRC is pursuing the use of appointed administrators to penalise the operators.
Despite the poor investment climate, Grameenphone has pushed aggressively ahead with its 4G rollout, installing 1,800 4G base stations in the first nine month of the year to take the total to 9,300 sites, boosting LTE population coverage to 69 per cent at end-September.
Robi Axiata customers’ monthly data usage doubled in the year to end-June, hitting 1.8GB per person.
Other indicators also show a strong upside. The GSMA Connectivity Index showed the country’s score jumped from 23 out of 100 in 2014, to 44 in 2018. Affordability was the biggest driver of improvement in the last year, mainly due to a reduction of income inequality, but also a result of improved affordability of medium- and high-end tariffs and handsets, GSMA noted in a report.
Earlier this month, Post and Telecommunication Minister Mustafa Jabbar announced the government plans to initiate 5G connectivity in the country by 2021 and spread the service across the nation by 2026.
The move to the next-generation mobile technology and making additional gains will certainly require mobile operators to invest heavily in 4G, and soon 5G, infrastructure. All the more reason to welcome the regulator’s recent offer to form a committee to resolve the damaging tax dispute with two of the country’s largest tax payers.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.