Ukraine's mobile telephone operators are crying foul over a government proposal to impose a new excise tax that would boost the price of cellular calls by more than 50 percent. On Sept. 17, Parliament gave preliminary approval to draft legislation that would charge mobile operators a tax of ECU 0.15 ($ 0.19) for each minute of traffic on their network. The rates for domestic calls from mobile phones now range from 25 to 50 cents per minute depending on the time of call and type of service.
The companies offering mobile phone services charged this week that the government is undermining the industry. 'For the first time … our government is trying to impose an excise tax on a service rather than a commodity, and this is unheard of,' said Valeriy Posnikov, spokesman for Golden Telecom, which operates a GSM-1800 cellular telephone network in Ukraine.
'About 40 percent of our potential clients will be lost,' predicted Ukrainian Mobile Communications spokesman Andriy Hunder. UMC offers mobile telephone services based on the NMT-450 and GSM-900 standards.
Both firms warned that the excise tax would actually cost the government money by shrinking the size of the market. Posnikov estimated the treasury would likely forfeit $8.3 million in value-added and corporate income taxes because of reductions in the volume of mobile calls that would follow introduction of the excise tax.
He also said the Cabinet's proposal jeopardizes $1.75 billion in investments over the next five years. 'The government is trying to get more money out of communications, but in effect what happens is that they will get less money,' said Hunder.
One mobile phone company executive suggested that the proposed excise tax would benefit DCC, a Donetsk-based firm which offers mobile services in six regions of Ukraine including Kyiv. DCC's 'wireless local loop' standard is not covered by the proposed excise tax.
A DCC official denied that his company is getting special treatment. DCC Vice President Vitaly Ivanov said it is 'absolutely out of the question that the government has introduced this tax to help us.
'I don't even know anyone in the Cabinet,' he added. Ivanov said that his company is just as furious over the proposed the tax as its
competitors. 'Next thing you will expect an excise on air,' he said.
Backers of the government's proposal were hard to find this week. The government's press service could provide no information on the excise tax, which was buried in a month-old draft law approved by the Cabinet among excise taxes on gasoline and chicken quarters.
The draft was signed by most members of the cabinet, but not by the communications minister. 'The Cabinet did not even bother to consult with the Communications Ministry, the policy-maker for the industry,' said Posnikov. One Parliament member said to be pushing the excise tax denied doing so Tuesday. Serhy Teriokhin, a member of Parliament's Fiannce and Banking Committee, said he favors an excise tax on mobile phone calls in theory, because it is easily collected and both the companies and their clients can afford it.
'But I am not a great fan of introducing excise tax on telecommunications just now,' he added.
Teriokhin said the rates for mobile telephone calls within Ukraine are already too high Р twice as high as in Britain and nearly three times higher than those in France. He said he would like to reduce the excise tax rate to ECU 0.02 ($0.025) per minute.
Teriokhin's committee, which took up the bill after it was approved by the legislature on first reading, has already resolved to lower the tax to ECU 0.05 and extend it to cover DCC as well, said the deputy.
However, officials of the mobile telecommunications companies said they are struggling to stop the tax in any amount.
'We are … trying to make it crystal clear that neither the government nor the clients will benefit from this excise,' said Hunder.
The new tax proposal comes at a crucial juncture for Ukraine's young cellular phone industry. Just last week, UMC rolled out with much fanfare its new GSM-900 network. One of its competitors, Kyivstar, began advertising its competing service this week. A third company, the U.S.-based Motorola Corp., canceled plans to invest $500 million in its own cellular phone network in Ukraine earlier this year after complaining about constant rule changes by the government.
