A Ratings Agency has put specific numbers behind the entity-based and mobiles-sector specific taxes in 2015 interim budget.
Should the proposals go ahead, 2015 FFO-adjusted net leverage for Sri Lanka Telecom (SLT, BB-/Stable) and Dialog Axiata (Dialog, AAA(lka)/Stable) is likely to deteriorate to 1.8x and 2.5x, respectively (2014: 1.2x and 1.3x), while the operating EBITDAR margin may narrow by 400bp and 800bp, respectively. Of the two, Dialog will be more affected by the taxes as 38% of its 2014 revenue was from prepaid services, compared with 21% for SLT. Dialog will also pay Rs. 1b, as the sole DTH operator with over 50,000 subscribers.
A shift in the burden of the 25% telecom levy from consumers to telcos is likely to incentivise consumers to increase voice and data usage. However, Fitch Ratings thinks that this increase will be only gradual – and insufficient to offset the impact of the absorption of the telecom levy.
Smaller, loss-making telcos including Hutchison Lanka and Bharti Airtel’s (BBB-/Stable) fully owned subsidiary, Airtel Lanka, may consider exiting the industry as most of their revenue is pre-paid. Fitch Ratings believes that market leaders Dialog and SLT could acquire the smaller operators to reduce price-based competition and consolidate spectrum assets. Sri Lanka’s telco market is one of the most overcrowded markets in the world, with five mobile operators serving a population of 21 million.
If the proposals are implemented, Sri Lankan telcos will pay one of the highest taxes as a percentage of revenue among Asia-Pacific telcos. SLT and Dialog will pay about 28% and 36% (2014: 12% and 17%) of their respective 2015 revenue in taxes, fees and levies. This is much higher than the case for India’s Bharti Airtel and Indonesia’s PT Telekomunikasi Indonesia (BBB-/Stable), which paid about 20% and 17% of their 2014 revenue in similar taxes and levies to their respective governments.