Landline Tax Consultation Launched In UK

by Jason Gorringe, Tax-New.com, London

Monday, January 04, 2010

The UK Treasury has launched a consultation on a proposed landline duty to fund a nationwide high speed broadband internet access rollout, as flagged up in the "Digital Britain" report published in July 2009.

The extension of what is being called "Next Generation Access," or NGA, is deemed, according to the government, to "form an essential part of the UK’s digital infrastructure, which itself drives the UK’s productivity and international competitiveness."

The consultation document went on to suggest that:

"It will help provide new ways of working to reduce barriers to entering the labor market and improve access to markets. NGA could also offer wider social benefits through improved access to healthcare and education services."

Announcing the details of the proposed levy in mid-2009, Treasury Minister Stephen Timms, who is in charge of implementing the Digital Britain project, revealed that the tax will likely equate to an annual charge of GBP6 on each home with a phone line, regardless of whether the line is operational. He went on to predict that the measure will raise between GBP150m and GBP175m, which will be ring-fenced to pay for the NGA rollout.

The consultation considers the legislation required for, and the impacts of, the introduction of the Landline Duty, primarily seeking views on the legislation for the Landline Duty as currently drafted.

According to the consultation document, the duty will be payable on local loops, which are the lines that connect an end-user’s premises to the wider communications network.

As previously stated, the duty will be payable on all local loops that are made available for use by an owner, whether or not the lines are actually used. It will also be payable on all local loops regardless of whether the loop consists of a copper pair, a co-axial cable, or a fibre connection.

The landline duty will apply regardless of the service that is being provided over the local loop. Services may include traditional voice services or other data services – namely broadband (although the government has stated that it does not intend to capture television services).

The document observed: "There are some difficulties with this general approach due to how some retailers provide services to their customers. Virgin Media provide broadband services over a co-axial cable but standard voice services over a separate copper line where other providers would just use a single copper line for both voice and broadband services. BT will also face similar issues where fibre is overlaid on copper wires. Government’s intention is to ensure that there is no double liability under these circumstances."

Explaining the rationale for the scope of the planned tax, the Treasury stated: "The principle reason for applying the duty applying to each local loop is one of simplicity. If the duty regime becomes more complex it would become more difficult and expensive for industry and HMRC to deliver and administer."

It continued: "A system that required wholesalers or retailers to demonstrate that a line was or was not in use would have created significant extra burdens for both industry and HMRC. These burdens would be disproportionate to the level of duty receipts that would be affected."

"The inclusion of fibre connections is important for simplicity and fairness and to ensure that a reasonable level of funds is raised. Excluding Fibre to the Cabinet (FTTC) from the tax would mean excluding the Virgin Media network as well as an increasing proportion of the Openreach network and greatly reduce the funds available for investment."

The duty will be payable on both broadband and telephony services for a number of reasons, according to the consultation:

• For simplicity, as the owners of local loops do not necessarily know which services are being provided to the end-users by retailers when they make a local loop available for use.
• Limiting the duty to lines being used for a voice service could distort the market by encouraging people to switch from traditional telephony to voice-over-internet protocol (VOIP) services such as Skype.
• For fairness, as those individuals who stand to gain the most from the roll-out of NGA are those who access the internet.

The document went on to reveal that the UK government has decided that the liability for the Landline Duty is on the owners of the physical assets – the owners of the local loops – arguing that this approach is consistent with other excise duties where liability lies high up the supply chain.

"The decision on how or whether to pass the tax on to wholesalers or retailers will be a commercial decision for local loop owners. Government’s view, as explained in the impact assessment, is that the duty will be passed to retailers and subsequently to end customers," the document stated.

There will be certain exemptions provided for in the new legislation, and the mobile network has also been excluded "for reasons of simplicity," according to the UK authorities, who argued that: "It would be difficult to apply a monthly duty to pay-as-you-go users in practical terms, and to exclude them from the duty, if it was applied to other mobile users, would be unfair as well as distort competition."

The plan is to implement the new duty on October 1, 2010.

The Treasury revealed that the consultation period will run until February 12, 2010, with a summary of responses to be published in the Budget.