New methods to calculate fees on telecom sector

The Ministry of Finance has conducted a number of studies over the last few months about the telecom sector and how to impose fees on it based on international best practices, taking into account the existence of more than one operator in the sector, the need of the sector to invest and expand, the big difference in fees imposed on the two operators of the sector. Based on the results of the studies, the Ministry has presented its findings to the Cabinet of Ministers, where it has been discussed and a decision taken in that respect, to change the method of calculating the fees applied by the Federal Government on the telecom sector. The changes were made with the aim of giving both firms and the shareholders the certainty to know their liabilities for the medium term and of bringing fees on both Etisalat and Du to similar levels gradually. In previous years, fees paid by Etisalat alone were amounting up to AED9bn annually, while the total amount forecasted by the Ministry of Finance for future years for both Etisalat and Du is in the region between AED7.0 to 7.8 billion annually. The new method calculates the fees on both revenue and profit of the Telecom operators. The rates of fees paid to Federal Government in the past and the rates based on the new method are as follows: Etisalat Du % on profits % on revenue % on profits % on revenue 2016 30.0% 15.0% 30.0% 15.0% 2015 35.0% 15.0% 30.0% 12.5% 2014 35.0% 15.0% 25.0% 10.0% 2013 35.0% 15.0% 20.0% 7.5% 2012* 35.0% 15.0% 17.5% 5.0% 2011 50.0% 0% 15.0% 5.0% 2010 50.0% 0% 15.0% 0% 2009 50.0% 0% 0% 0% 2008 50.0% 0% 0% 0% The new method shall ensure that by 2016 the two companies in the sector will be paying equal percentages on both revenue and profit. In addition, and in order to encourage both operators to invest and grow, additional steps have been taken: - Fees will be applied on revenue and profit arising from regulated services. Where the operators provide services that are not regulated by the TRA and are in competition with other companies, this revenue or profit will not be subject to fees by the Federal Government. - Fees on revenue will be applied to locally operated services only. - Fees on local profit will be applied after the deduction of fees due on revenue. - Fees on international profits will only apply if the profits were not taxed in the originating country at a similar or higher level. Taking the above into account, the effective rate for Etisalat for the coming years is expected to decrease and be below the 50% it has been paying to date, thus reducing its liability to the Federal Government. As for Du, in the past the company has been provisioning 50% every year in anticipation to an announcement by the Cabinet of Ministers. Going forward, the effective rate of fees to be paid by Du will be increasing gradually to reach the same rate of fees on both profit and revenue as Etisalat, but at the same time giving Du and its shareholders certainty about the liability for the medium term.