VAT on telecom services hits Dialog as March profits fall 42%

The application of increased Value Added Tax (VAT) on telecom services has begun to bite into the revenues and profits of the country’s largest mobile telecommunication provider which has over 12 million subscribers, the interim results showed. 
During the first full quarter since the imposition of the 15 percent VAT on telecom services since November last year, Dialog Axiata PLC saw its net profit falling by as much as 42 percent to Rs.1.55 billion or 19 cents a share as the performance was also impacted by higher depreciation, finance cost and forex losses. 
“….consumer spending was restrained by increased consumption taxes on communication services spanning mobile, fixed, broadband and pay television”, the company said in an earnings release. 
Dialog’s top-line grew by just under 5 percent year-on-year (YoY) to Rs.22.2 billion, but the operating profit fell by 14 percent YoY to Rs.2.89 billion due to heavy distribution and administrative costs, which captured the depreciation and forex losses. 
According to the segmental information, the group’s cash cow, the mobile operations, saw its operating profit falling to Rs.2.69 billion from Rs.3.62 billion during the same quarter last year. 
The segment revenue slightly increased to Rs.18.5 billion from Rs.18.1 billion from a year ago. Meanwhile, the fixed telephony and broadband business of the group turned an operating profit of Rs.403.7 million from a loss of Rs.97.5 million. The revenue rose slightly under a billion rupees to Rs.2.91 billion.  
The group’s pay television business expanded its losses up to Rs.200 million from Rs.164.3 million a year ago. The revenues edged down to Rs.1.49 billion from Rs.1.58 billion a year ago.  

This was despite the total subscriber base expanding to 866,000 by the end of March. 
Meanwhile, the net finance cost also rose to Rs.892.5 million during the quarter under review from Rs.323.8 million YoY.
During the quarter, the Dialog Group paid as much as Rs.10.5 billion in taxes to the government, an increase of 28 percent from the same period last year. 
This included Rs.3.6 billion of direct taxes and levies and Rs.6.9 billion of consumption taxes collected on behalf of the state. 
By the end of March 31, 2017, Dialog’s Malaysian parent, Axiata Investments (Labuan) Limited held 83.32 percent stake followed by the Employees’ Provident Fund with 2.22 percent stake and Norges Bank with 1.27 percent stake.