Telstra’s Digicel facing new $37m PNG ‘super tax’ under proposed new laws

A new ‘super tax’ is set to hit incoming Telstra subsidiary Digicel, with Papua New Guinea reportedly pursuing new laws that would cost it millions in new taxes.

Digicel is facing a hefty new tax under proposed new legislation.

A new “super tax” is set to hit incoming Telstra subsidiary Digicel, with Papua New Guinea reportedly pursuing new laws that would hit the telco’s local customers and cost it millions of dollars in new taxes.

Digicel, which is set to be acquired by Telstra and the federal government in a $2.5bn deal, will be hit by a 95 million PNG kina ($37m) tax, according to leaked draft legislation reported by the Papua New Guinea Post-Courier.

The proposed tax would affect Papua New Guinean telecommunications companies and banks that hold a market share of more than 50.1 per cent, the Post-Courier reported, which would automatically hit PNG’s dominant telco Digicel. The laws would take the form of an amendment to PNG’s 1959 Income Tax Act.

The new laws “would have implications on the availability of credit in PNG, while for Digicel it will inevitably have a flow-on impact on pricing, which will make services more costly and less ­affordable for Papua New Guineans, particularly those in rural areas, many of whom are served only by Digicel, impact investment in infrastructure, technology and services, and increase risk of discouraging further investment by international investors,” the Post-Courier said in its report.

Telstra last month finalised a deal in partnership with the Australian government to buy Digicel’s Pacific operations for $US1.6bn ($2.14bn), plus an additional $US250m subject to business performance over the next three years.

Telstra will contribute $US270m in equity, with the federal government providing the remaining $US1.33bn, in an acquisition that has been widely viewed as a political move to counter the rising regional influence of China.

Telstra said in a statement it was aware of the potential new taxes.

Denis O'Brien, billionaire and chairman of Digicel. Picture: Simon Dawson/Bloomberg

“We are watching developments closely in PNG and will carefully consider the proposed levy,” a spokesman said.

It is understood the laws will be discussed over the next week.

Digicel, founded by Irish billionaire Denis O’Brien, is the largest mobile phone carrier in the Pacific and operates 3G and 4G networks across Papua New Guinea, Fiji, Samoa, Vanuatu and Tahiti with about 2.5 million subscribers.

Telstra CEO Andy Penn said his telco was initially approached by the Australian government to provide technical advice in relation to Digicel Pacific, and subsequently considered acquiring the business with financial and strategic risk management support from the government.

“We’ve been working on this for the last 10 months or so, something in that order, and it was initially in relation to strategic advice and that ultimately led us to thinking about a potential ­acquisition in partnership with government,” he said.

Mr Penn said the terms of the sale had now been agreed with completion expected to occur in the next three to six months, and that the transaction exceeded all Telstra’s dealmaking criteria.

“Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region. The Australian government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region,” he said.

The Australian government was contacted for comment.