Potential excise tax credit negative for True Group: Moody's

 

 

 

 

 

 

“The extent of the impact will depend upon whether or not the tax can be passed on to customers,” it said.

Last week, there were reports that the Excise Department is considering resuming collection of excise tax on telecommunication services to compensate for the lost revenue share after 2G concessions expire. The mobile concessions of three main operators will end starting next year through 2018. True Move's concession with CAT expires in September 2013.

Although unlikely at this time, Moody's does not rule out the possibility of excise duties being reinstated for telecom operators in Thailand. While the theoretical range for the excise tax is 0-50 per cent, it expects excise taxes to be no more than 10 per cent. 

True Move paid excise taxes of 10 per cent of revenues from 2003 to 2006. However, at the time, the impact was not significant as the payment was merely a carve out from the total concession payment due to CAT.

A risk is the National Broadcasting and Telecommunication Commission caps voice tariffs at Bt0.99 per minute and the actual tariff charged by operators is typically lower than the cap. Furthermore, the tariff per minute is calculated on a pre-tax basis, which allows flexibility to raise tariffs and pass on the additional tax burden to the customers.

"However, given ongoing high levels of competition in the Thai telecom space, it is our expectation that True Move and True Corp will have to absorb at least a part of the tax, if introduced, which would further pressure operating margins," said Nidhi Dhruv, a Moody's analyst.

"True Move's EBITDA margins are expected to remain under pressure owing to a changing revenue mix, with a growing contribution from lower margin data services as well as expenses related to launching and marketing its 3G services under TrueMoveH. True Move's adjusted EBITDA margin for the last 12 months until the first quarter 2012 reduced to 23.8 per cent as compared to 26.7 per cent for full year 2011," added Dhruv, who is also the lead analyst for True Move and True Corp.

Of the three principal operators, True has the weakest financial profile and therefore least flexibility to withstand the absorption of the tax. True Corp's adjusted debt/EBITDA stood at 4.55 times in the last twelve months upto March 2012 compared to 0.68 time for Advanced Info Service and 0.57 time for Total Access Communication (as of Dec 2011).

"Moreover, the reintroduction of potential excise duties exacerbates the regulatory overhang for True Group, whose 3G services contracts are already under scrutiny. It also extends the period of protracted regulatory uncertainty for telecom operators in a highly politicised operating environment in Thailand," added Dhruv.