After winning the 10MHz 4G license in the 850 MHz Band at the base price of $395 million as the sole bidder in a recently held auction by the Pakistan Telecommunication Authority (PTA), the Norwegian giant, Telenor, has moved the Islamabad High Court against the government of Pakistan, Federal Board of Revenue (FBR) and PTA as Telenor does not intend to pay the 10 per cent withholding tax (WHT) amounting to $39.5 million.
“Telenor moving court against the government of Pakistan, FBR and PTA is very strange since the tax was already mentioned in the Information Memorandum of the 850MHz 3G/4G spectrum auction by the PTA. Before bidding, Telenor should have highlighted the issue with the relevant authorities instead of crying foul or trying to strong arm the government. What is even more intriguing is the fact that not only has Telenor Pakistan benefited from the timing of the said auction because of lack of interest by other competitors but has been able to secure the license once again at base price,” claimed an FBR official, speaking on condition of anonymity.
The auction was hastily put together by the PTA when it became apparent that there would be little market interest in the auction. It was merely an attempt to squeeze as much cash as possible from the telecom sector for a huge sum prior to the announcing of the national budget. The government could not fetch a sizeable amount due to the bad timing of the auction but, now, even the sole bidder is refusing to pay the 10 per cent WHT.
The auction, prima facie, was seen as a favour to the Norwegian company as it was apparent that no other telecom player will participate and the only bidder will be at an advantage to bid as close to the base price as it could. PTA is not exercising its right to cancel the bid for it being too low, which also hints at some desperation.
This is the second time that Telenor has been awarded the license on base price. Earlier it was when the first 3G/4G auction took place.
Telenor’s stance of not paying the 10 per cent WHT has surprised many as in its petition to the court, Telenor submitted that under section 236A of the Income Tax Ordinance, withholding tax is payable where there is a sale by public auction or auction by tender of any property or goods. Telenor has argued that since there was no excess demand, no auction took place. And the transaction did not even constitute a sale, but merely referred to an authorisation given to the company to use the radio frequency.
PTA has refused to grant license to Telenor without payment of the withholding tax of $39.5 million. If according to Telenor their deal with the government did not constitute an auction, then technically PTA reserves the right to cancel the sale of the said spectrum until a later time when there is competition in the market.
It appears that the Norwegian telecom company, knowing that it was the only company interested in the purchase of the said license, has resorted to strong-arming the government into ensuring that it does not have to pay taxes on the said spectrum, a tax that Telenor had previously paid when they first purchased the 3G license. The company backtracked from its intention to acquire 2 x 10 MHz in the 2100 MHz frequency band then, but was facilitated after 2 x 10 MHz frequency band was broken down to 2 x 5 MHz of frequency band for Telenor which was also sold to them at base price.
According to an industry expert who is a management consultant and a University of Cambridge graduate, “Normally, higher UHF spectrum (850 MHz band) is sold at roughly twice the unit price of 2GHz spectrum because of potential savings in building infrastructure over UHF. Telenor not only managed to avoid paying a 200 per cent premium but also negotiated to keep the license technology neutral. The biggest question, however, remains about the timing of the auction. Mobilink and Zong had excess spectrum. The only player that had a vested interest in an early auction was Telenor. This poor timing and lack of competition has caused a loss of millions to the national exchequer.”
“Prior to the auction, consultants from InterConnect Communications as well as the Auction Advisory Committee decided not to give a green signal due to concerns over high costs, low ROI and high taxation. The Finance Ministry, however, pushed the regulating authority hard to conduct the auction by June of the current financial year,” the source explained.
Sources within the Finance Ministry claimed that Telenor was adamant about making a payment of $350 million to the government on account of the said Spectrum however owing to the reluctance of senior government officials, they agreed to an amount of $395 million for the said auction. Now according to the official, Telenor has resorted to dirty tactics to strong arm the government”.
Industry analysts are of the view that the government could not only have raised a significantly higher sum had the auction been postponed to 2018/19, it could also have ensured that the process was transparent, since licenses of major Telecom companies were set to expire then. But the government chose an odd time for the auction which is why they had to deal with a sole bidder.
Pakistan Today made repeated attempts to contact the Telenor management for their comments but they refused to either confirm or deny the information available with the paper.
Atifa Siddiqui, former head of corporate communications Telenor, said that she could not make a statement on the issue while Saad Waaraich, assistant manager corporate communications Telenor, also refused to give a comment.
