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Internet companies ask for extension to their exemption from VAT
June, 13th 2017

Private internet companies have asked the Ministry of Communications and Information Technology to negotiate with the Ministry of Finance to extend the fixed internet services (ADSL) exemption from the value-added tax (VAT) that is to be imposed on them starting from the next fiscal year.

Three officials from the private internet companies told Daily News Egypt that they all refuse implementing VAT on ADSL services, as the current prices are subsidised by Telecom Egypt through offering the companies discounted rates on leasing the infrastructure, adding that there are negotiations for further discounts to clients.

They pointed out that internet companies are making losses every year, except for TE Data, which is a subsidiary of Telecom Egypt. TE Data owns 75% of the ADSL market.

Orange, Etisalat, Vodafone, and Noor ADSL all dominate the remaining 25% of the ADSL market. The sheer size of activity amounts to EGP 4bn per year, including EGP 3bn for TE Data and EGP 1bn for the rest of the companies.

All ADSL companies are set to be subject to the VAT next fiscal year. The government had imposed a VAT of 8% on mobile services and 13% for telecommunication services.

The officials added that internet companies reduced prices of services last year after the agreement with the Ministry of Communications, indicating that the subject of a fixed internet activity tax will force companies to increase the price of services, which is contrary to the agreement of the Ministry of Communications with companies.

They said that companies lose more than EGP 1bn a year due to illegal internet connections, and they expected sales to decline if the sector is subject to the VAT, especially as companies will pass the increases on to the customer, raising the prices of services and limiting the growth rates of the sector.

The ADSL market has attracted about one million subscribers in 2016, to boost the number of ADSL subscribers to 4.4 million clients at the end of September 2016.

A debate was stirred with the introduction of the VAT on mobile services last year, which led to an increase in the prices of prepaid recharge cards and the announcement of companies to provide additional credit on the scratch card to reduce customer objections and dropped sales.

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