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Digicel in battle with PNG government over $100m tax demand

James Marape PNG PM.jpg

Digicel is fighting with the government of Papua New Guinea (PNG) over a demand that it pay in tax US$100 million if it sells its Pacific operations to Telstra.

But the company’s owner, Denis O’Brien, has received assurances from PNG Prime Minister James Marape (pictured) that the new tax will not proceed.

However Digicel said in a statement to Capacity that it “is now engaged in discussions with the Papua New Guinea Government and other relevant stakeholders to ensure this commitment is honoured”.

The government introduced the tax – which applies only to the telecommunications and banking sectors – at the end of March, potentially unravelling Digicel’s $1.57 billion sale of its Pacific business to Telstra.

The disputed tax was payable on 30 March, says Digicel, just one day after the government passed the Income Tax Act, which included a new Additional Company Tax.

If Digicel does not pay, there is an additional penalty of $14 million, taking the total tax to $114 million, 7.3% of the sum due to Telstra.

Telstra said the tax was a matter for the current owner of Digicel Pacific, and that it was still awaiting PNG approval for the deal.

Digicel is eligible for the new tax because it holds more than a 40% share of the PNG telecoms market. In fact it has 90% of the retail mobile voice and internet market.

The deal includes the Fiji, Nauru, Samoa, Tonga and Vanuatu operations of Digicel as well as Papua New Guinea.

The Australian government’s Export Finance Australia has agreed to pay A$1.9 billion (US$1.44 billion) of Telstra’s purchase price, a move seen as preventing a takeover by a Chinese company. But, if the deal is completed, Telstra will have 100% control.