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Digicel Group says that the tax could incur a legal battle with the Papua New Guinean (PNG) government that may impact the timeline of the sale of Digicel Pacific to Telstra
Late last month, the PNG government announced that it had imposed a new tax that could see Digicel Group’s PNG operations liable to pay a one-time fee of around $100 million, with a further $14 million due for non-payment.
The Additional Company Tax comes as parts of reforms to the Income Tax Act and specifically targets telecoms and banking companies that control over 40% of their respective markets in PNG.
Digicel’s founder, Denis O’Brien, last month described the tax as “arbitrary”, “company-specific”, and “perplexing”, arguing that it will hurt the PNG economy in the long-term by damaging its reputation among foreign investors.
In fact, O’Brien reportedly met with PNG Prime Minister James Marape last week, with a subsequent press release from Digicel saying that the company had been assured that the new tax would not be introduced.
Now, with the tax formally in place, Digicel is reportedly engaged in discussions with the PNG government “and other relevant stakeholders” seeking a resolution to this and possibly to seek exemption from the tax.
"In parallel with these discussions, Digicel is also considering its legal options in the event that this discriminatory tax is not removed," said the company in a statement.
But perhaps even more concerning for Digicel is the potential implications this tax and potential legal battle could have on the process of selling its Pacific unit to Australian operator Telstra.
Telstra had agreed to buy Digicel Pacific for $1.6 billion in October last year, with the Australian government providing roughly $1.33 billion of the funds, largely to prevent the geopolitically strategic unit falling into the hands of Chinese investors.
Telstra has commented about the ongoing situation that its plans have not changed with regards to the purchase and that the tax is a matter for Digicel’s current ownership to navigate.
Digicel itself, however, says that the new tax could cause delays for the sale process, which is currently waiting for the last of a number of required regulatory approvals.
“This matter requires urgent resolution given its implications for the sale of Digicel’s Pacific operations to Telstra but also given the knock-on consequences for all foreign direct investment exiting Papua New Guinea,” said Digicel in a statement.
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