Telstra’s takeover of Digicel Pacific has hit a stumbling block, as a new amendment income tax in Papua New Guinea is threatening the proposed sale.
The sale of Digicel Pacific’s operations, which includes Fiji, PNG, Vanuatu Nauru, Samoa and Tonga, is worth $3.3 billion and the Australian government is contributing more than half that amount.
In late March, the Parliament in PNG approved an amendment to the Income Tax Act which introduces a new Additional Company Tax on the telecommunications and banking sector.
Under the ACT, it imposes a one-time $200 million tax liability on Digicel (PNG) Limited with a further penalty of $28 million for non-payment.
The fear is also that should the non-payment happen, Telstra will have to fork out a total of $228m.
Digicel says the disputed tax was payable on March 30th, and claims during a meeting between Digicel owner, Denis O’Brien and Prime Minister James Marape and two of his regional Governors, the PM assured Digicel that the new the new tax would not proceed.
Digicel says it is now engaged in discussions with the PNG Government and other relevant stakeholders to ensure this commitment is honoured.
The telco says 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 and the wider reputational and credit rating implications for Papua New Guinea internationally.
The company says it is also considering its legal options if this discriminatory tax is not removed.
Digicel says these matters will affect the timing of the previously announced sale of Digicel Group Holdings Limited’s wholly owned subsidiary Digicel Pacific Limited to a wholly owned subsidiary of Telstra Corporation Limited.
There is also confirmation from Digicel that prior to the introduction of the ACT, all but one of the required regulatory approvals to complete the transaction had been obtained.
FBC News also contacted Telstra, which says it is yet to complete the acquisition of Digicel Pacific, so questions about the tax should be directed to the current owners.
However, a company spokesperson says they continue to work closely with the current owners on completing the relevant deal steps.