Information & Communication Technology

Information & Communication Technology (ICT) 

 

- Excise Department to collect 10% telecom excise tax   

On January 28, 2014, the Excise Department proposed telecom excise tax, collecting 10% of revenue under mobile operator's license. Mobile service system has switched from concession to license, resulting in less regulation fee for the government. The government previously received 25-30% of mobile operator's revenue through TOT and CAT under concession, but now the government receives one-time income from spectrum bandwidth bids, while mobile operators pay only 5.25% regulatory to the NBTC (independent entity) for the net license. Overall, under the new system, mobile operators bear total regulatory cost of around 7-10% of their revenue, versus 25-30% regulatory cost in the past under concession; this means mobile operators enjoy 18-20% of their revenue from their license. 

 

- 50% chance of excise tax. Subscribers may have to bear some tax burden  

 

Although telecom excise tax policy is reasonable in terms of regulatory cost, many factors need to be considered first: 

 

1) 3G operators bear higher cost under the new license: advertisement expense, investment in 3G network, and averagely 15% decrease in service fee (under the NBTC's regulation). Thus, normalized profit margin is projected to rise by only 200bp under the new license. 

 

2) Excise tax was previously collected, but later revoked since telecom services were no longer a luxury. 

 

3) Subscribers may need to bear higher cost; this is not in line with the intention of the bid, which is to lower regulatory cost so that subscribers have to pay less. 

 

The government currently needs fund for economic stimulus investment plans, so there is 50% possibility for the excise tax to be imposed officially. For the worst-case scenario that the government collects excise tax by 10% of mobile operators' total revenue and subscribers have to bear half of the tax (5%), the ICT sector's FY2015 earnings are projected to drop by 17.5% from the forecast and the fair values might fall by 10-15%. We maintain our forecast, waiting for clarity.  Excise tax idea has negative sentiment. NEUTRAL    

 

Excise tax policy has negative sentiment on the ICT sector. We reiterate NEUTRAL. We recommend staying away from investment in mobile operator stocks and switching to other ICT stocks with strong fundamental factors and high upsides that are not affected by this issue: AIT(FV@B52) and THCOM(FV@B51).