HKT eyes change in mobile spectrum licence payment

HKT Trust and its operating arm HKT, which yesterday posted a solid 18 per cent year-on-year interim net profit growth, is gearing up for a new battle with the government over how spectrum licence fees are paid by the city's mobile network operators.

"All the operators have been complaining about how that has changed from being an annual payment to being lump-sum payment for 15 years, and why its tax treatment suddenly changed," HKT group managing director Alex Arena said. "We're all taking expert advice on this. We have the ability to seek a ruling on this and even appeal it."

That revision made by the secretary for commerce and economic development on the payment method for the so-called spectrum utilisation fee resulted in unintended tax consequences for the incumbent 3G network operators, which include SmarTone Telecommunications Holdings and Hutchison Telecommunications Hong Kong. HKT acquired rival CSL New World Mobility in May.

When the 3G spectrum was first assigned in 2001, the fee was paid annually over 15 years. As the payments were recurring, the Inland Revenue Department treated it as "revenue expenditure" and hence, tax-deductible, according to an HKT filing with the Legislative Council in May.

The lump-sum settlement, however, has made the IRD regard the payment as a non-deductible "capital expenditure".

The change would have each operator incur about 16.5 per cent of additional tax on the fee pertaining to spectrum awarded in auctions going back several years, the HKT report said.