Economist reacts to Digicel’s VAT move
The President of the Barbados Economics Society, Jeremy Stephen, has described as a win for consumers, Digicel’s decision to absorb the 4.5 per cent increase in Value Added Tax (VAT) on cellular phone services. However, he said he was unsure whether the company could keep that promise beyond 2016.
The tax measure, which saw mobile phone costumers paying 22 per cent VAT on data and voice services, went into effect 12 days ago.
“[It] should be seen in the short run as a win for the average consumer but only really in the short run until we are very clear as to whether Digicel’s ability to sustain that increase in their operational cost . . . would be possible,” Stephen explained.
However, the University of the West Indies (UWI) lecturer said the long term ramifications of such a move would hinge on the response of Digicel’s competitor FLOW.
“It all depends on the ability of FLOW as a competitor to see what they can bring to the table, considering that they have issued the new prices which would have incorporated the increase in VAT. The entire notion of absorbing a 4.5 per cent increase must be accepted if a company such as Digicel has the ability to finance the increase in the cost of doing business,” Stephen said.
That potential, he said, was acquired when it obtained the recent Wide Area Network (WAN) Government contract. He however explained that Digicel too had upped some of its costs.
“Digicel has had the recent ability via the expected windfall from the Government contract and the increase in the cost of the provision of data packages to clients, although they have also increased the gigabytes on offer, the actual cost has gone up as well as the overall cost.”
Stephen said he was also looking forward to the response of FLOW as he revealed that FLOW could have an ace up its sleeve, following reports back in December that Liberty Global was looking to acquire FLOW.
“The company is in talks to purchase Cable & Wireless, the parent company of FLOW Caribbean, to do a merger with Vodaphone, which is the largest telecommunications provider in the entire world. So, with that backing if the deal goes through, I could imagine that the deep pockets that FLOW would have, could easily mount a big challenge to Digicel,” the economist explained. (FW)