Turkey Draws Fire for Tax on Mobile Licenses

BERLIN (06/23/2000) - A hefty tax on mobile phone licenses could cool foreign investor interest in Turkey's wireless telephony market, observers say.

Turkish finance officials are demanding that companies that purchase licenses to operate mobile phone services in the country pay a 17 percent value-added tax (VAT) on the price of the license. The fee would especially hit hard a partnership between Telecom Italia SpA and Turkish bank Bankasi AS, which in April bought a US$2.5 billion license to become Turkey's third mobile provider.

"Telecom Italia is now arguing that that's just too much and they shouldn't pay it," said Mohsen Malaki of Pyramid Research, a division of The Economist Intelligence Unit. "They're in discussions with the government and say they really can't afford the full $3 billion, so they haven't signed anything."

Malaki added that the Turkish government is "desperate to get money" to meet International Monetary Fund (IMF) budgetary guidelines for the year.

A spokeswoman for Telecom Italia would only say, "We comply with the Turkish fiscal rules." She requested, in accordance with company policy, that her name not be used.

"The delays that have been caused by Telecom Italia are going to cause a little bit of jitter in the market," said Malaki, especially now that Turkey's number-one mobile provider, Turkcell Iletisim Hizmetleri AS, is planning an initial public offering (IPO) in early July. He added that the government put a fourth license out for bids but found no takers.

Malaki noted that the VAT policy puts Turkey at odds with member states of the European Union (EU), which do not charge the tax on license fees. Turkey, which has ambitions to join the EU, was recognized as a candidate in December.

Asked whether the tax might discourage foreign investors, Taner Zeybek, a finance department spokesman at the Turkish embassy in Berlin, said, "Maybe, but there are other advantages in Turkey: a younger generation, almost every third person has a mobile phone. It's a good market, so lots of foreign companies want to come to Turkey."

Telecom Italia SpA can be reached in Rome at +39-06-39002987 or on the Web at http://www.telecomitalia.it/.

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