Friday, May 20, 2005

Telecoms and Tax

A few days ago the head of the new Telecoms Regulation Authority announced that
a) Etisalat would continue to pay 50% of its profits as a 'royalty' to the Government, and
b) Any new entrants to the market would also have to pay this levy.

The royalty was originally introduced as the price that Etisalat had to pay for the privilege of having an officially-protected monopoly on telecommunications service. People assumed (well, I did, at least) that when the monopoly was removed, the royalty would no longer be paid. No monopoly, no royalty. So, it's somewhat surprising to see it continue.

Actually, it boils down to an issue of terminology. The UAE does not impose income tax on individuals or companies (yeehaa!). But the 'royalty' is nothing more or less than a tax on profits. And for Etisalat, these profits have been substantial. I believe they are currently paying about four billion dirhams a year (a little over one billion US dollars) in royalty payments. It's no wonder that the gubmnt is reluctant to let go of this.

There was a bit of a kerfuffle a few years ago when Dubai Municipality decided that it did not like restaurants printing the phrase 'includes / excludes 5% Municipality tax' on their menus. With an astonishing lack of foresight, they announced in the press that henceforth, the word 'tax' must be replaced with the word 'fee', and that this would have to be implemented within two weeks. No restaurants or hotels were informed directly of this decision, and so naturally they dragged their feet and did nothing.

The issue rumbled on for a few days, and I guess the hotels told the Municipality to get stuffed - they might make the change the next time they reprinted their menus, but it would be very expensive to do them all at once, and completely impossible within the two-week timescale.

But back to the semantics - a 'tax' is a percentage-based thing, while a 'fee' is a fixed number. So calling the tax a fee is actually incorrect, and the whole idea was quietly dropped. Menus still bear the orginal wording.

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