Could PNG tax demand affect Telstra’s Digicel deal?

Could PNG tax demand affect Telstra’s Digicel deal?

The government of Papua New Guinea has passed an act imposing a tax liability on Digicel, an operator that is a major player in the Pacific and Australia.

It has been suggested that the tax, equal to about $100 million with a further penalty of $14 million for non-payment, may affect plans for Australia’s Telstra to buy the Pacific operations of Digicel, a company headquartered in Jamaica.

These plans were reported in October last year after Telstra partnered with the Australian government for a US$1.6 billion acquisition of Digicel Pacific. This has been seen as part of a wider strategy to limit China’s influence in the region.

Digicel boasts a total of 13.2 million customers in 32 countries including 2.5 million mobile phone subscribers across its operations in Papua New Guinea, Fiji, Vanuatu, Tonga, Samoa and Nauru.

Now, however, Digicel Group has said it is considering legal options after Papua New Guinea imposed the $100 million tax on the operator on 25 March. It has said the tax has potential implications for the Australian buyout as well as suggesting that the country’s credit rating may suffer.

According to Reuters, Digicel's founder Denis O'Brien met with the Papua New Guinea prime minister James Marape last week to try to resolve what has been described as a "new arbitrary, company-specific tax".

Telstra has largely reserved comment so far, suggesting that the tax is a matter for the current owner of Digicel Pacific and awaiting Papua New Guinea regulatory approvals for the proposed acquisition.

Plans for the tax were first outlined last November in the country’s 2022 budget measures. The tax applies only to companies that control more than 40% of Papua New Guinea’s market for telecommunications and banking. Parliament was told that Digicel holds 90% of the retail mobile voice and internet market.

Reuters reports that Bank of South Pacific, the only other company affected, has told the Australian Stock Exchange that the tax must be paid annually in September.

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