The question, “what is a tax?” has leapt to the fore following the revelation that the Government intends to implement a Universal Service Fund (USF) to finance a submarine fibre optic cable between Antigua & Barbuda.
According to Minister of Information, Melford Nicholas, during a recent post-Cabinet briefing, consumers and operators in the telecommunication industry within Antigua and Barbuda will foot the bill for running the planned fibre optic cable. More specifically, he said, “The fibre optic network that will go to Barbuda will be funded by the operators, it will not be government funded. It will not be funds that will come from the taxpayers but it will come from the subscribers, the consumers and the operators.”
That is a great attempt at spin but the fact remains, the USF is a tax. The mere definition of a tax makes it so. The common definition of a tax is: ‘a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.’
Again, according to the minister, “The principle underlining the implementation of the Universal Service Fund is that wherever there are areas in society that are uneconomic to reach, all of the participants in the telecommunications sector, the service providers — in this case Flow, Digicel and APUA – are required to pay into the fund 1 per cent of their net revenues.”
That meets all the criteria of a tax. It is compulsory, levied by the government on business profits and added to the cost of some goods, services and transactions. We get that no government wants to introduce more taxes, but a tax by any other name is still a tax. And, this seems to be a sneaky way to introduce a tax by calling it a fund.
We have a fair bit of telecommunications experience in-house so we know exactly what a universal service fund is, and what its purposes are. The United States of America has a USF that was established in 1997. The fund generates significant contributions from the telecommunication companies to the point that it reported a total of $7.82 billion in disbursements in 2014. Overall, the fund is a complex beast that has its fair share of critics as we suspect it will garner here.
It is early days yet, so we will reserve any criticism or praise of the fund until we hear of the plans for administration and disbursement. This is of particular concern because funds such as these are prone to corruption and waste.
Let’s start with where is the money collected. At this point, we are going to assume that the money will not make its way to the government’s consolidated fund but will be kept separately. We are not sure of all the legal issues surrounding that, if any, so we will leave commentary on that aspect to others, who are more knowledgeable of tax receipts of this sort, to weigh-in on the matter. The point is the administration of yet another fund – auditing, reporting, etc.
Leaving collection, we move on to disbursements. Let’s just examine this fibre optic cable project which has been proposed as one of the key initiatives to be undertaken following the establishment of the fund. Who will own it? Who will build it? Who will maintain it? Will this be a government asset or will it be vested into the hands of the Antigua Public Utilities Authority (APUA)? If funded by all telecommunications providers and their customers, what rights do they have to cable access? At what price?
Listening to the minister, it is clear that one of the primary reasons for establishing the cable is to facilitate the expansion of ABS services and reach. The minister made specific mention that the fibre optic cable will significantly improve broadcasting between the two islands and announced the government’s intention to build a studio facility on the sister isle to facilitate Barbuda being an integral part of the national media network. As a non-contributor to the fund, will ABS be charged a market rate for access?
This, of course, gets back to who will own and manage the fibre optic cable. It also gets into the details of what services are covered by the USF? Funds such as these are designed to establish telecommunication services to underserved areas that are typically uneconomic to deploy infrastructure. Will broadcast television be considered part of the “telecommunications” basket? Seems like a stretch.
Further, as the minister said, the USF is borne by the consumer of telecommunication services, that means that we can all expect telecommunication services to go up by at least 1 per cent. Plus, the degree of difficulty with the USF implementation and administration is upped by the fact that the Government owns one of the telecommunication players and it has certain monopolistic rights and protections.
In our opinion, the government needs to tread very carefully with this whole USF issue. The telecommunication companies in Antigua & Barbuda, including APUA, have done a fairly good job in providing near universal service so it would be interesting to see what the Government determines is missing. Everyone can concede that Barbuda’s infrastructure needs improving but beyond that, what other areas (geographical and otherwise) need support of the USF? That leads to the question: is it temporary?
According to the minister, the Telecommunications Legislation to support the USF is imminent and once the fund has been established, the laying of the cable would begin shortly thereafter. So, there are interesting times ahead. Get ready.