Regulatory Impact and Compliance Cost Statement: Levy Mechanism to Fund New Telecommunications Activities of the Commerce Commission
[ Last Updated 16 November 2005 ]
18 June 2001
Contents
Nature and Magnitude of the Issue
1. In its response to the Ministerial Inquiry into Telecommunications, Cabinet agreed that the general costs of telecommunications regulatory functions be met by industry, with officials to report back on a mechanism for implementing the industry levy. Given the Cabinet decision, this statement does not deal with the merits of a levy compared to other funding like general taxation.
Public Policy Objective
2. The public policy objective is to design a levy to efficiently collect from the telecommunications industry sufficient funds to cover the general costs of the Commerce Commission's new telecommunications regulatory functions. An efficient levy will impose the lowest possible overall burden in terms of administrative costs, industry compliance costs and economic distortions.
Feasible Options That May Be Viable in Achieving the Objective
3. The following options have been considered:
Who Will Pay the Levy?
- network providers: operators who provide a telecommunications service through a component of the public network; or
- all telcos: operators who provide a telecommunications service; or
- KSO levy payers: operators liable to contribute towards the provision of KSOs.
How Will the Levy Be Calculated?
- two tier levy: a two-rate levy - the top rate payable by the four larger operators (quarter share of 98% of total levy) and the bottom rate payable by the smaller operators (share of 2% of total levy); or
- gross revenuepercentage: a percentage of the gross revenue from the telecommunications activities; or
- KSO levy percentage: a percentage of liable Kiwi Share costs.
4. The FIN paper proposes that the levy be collected from KSO levy payers and calculated as a KSO levy percentage.
Net Benefits of the Proposal
5. The benefits of basing the industry levy on the KSO levy include administrative and design simplicity, leading to minimal administration and compliance costs. Also, the costs lie where the key benefits of the regime fall.
6. The proposal arguably creates an economic cost by not imposing the industry levy directly on all operators who have customers expected to benefit from the new telecommunications regulatory functions (some of the smaller operators will not pay the levy). However, this economic distortion is not considered to be material and easily outweighed by the benefits of the proposal (such as lower administration costs) compared to other options.
7. The proposal will result in the levy being imposed on Telecom and the eight telecommunications operators who currently have interconnection agreements with Telecom. There are only a few other operators (probably around five) providing telecommunications services who could be levied, but won't be, and they are all very small.
Business Compliance Cost Statement
8. The proposal's compliance cost is the time taken by each liable operator to pay the bill for the levy, and is considered to be trivial. The costs attributed to collecting the data necessary to calculate the levy will have already been incurred as part of complying with the KSO levy.
9. The parties affected will be those telecommunications operators liable to contribute towards providing Kiwi Share obligations.
10. The compliance costs are expected to remain reasonably constant over time, but may change if the basis on which the industry levy is calculated is amended.
Consultation Undertaken
11. The Ministry of Economic Development in February prepared a discussion paper on proposals for the levy design and circulated it to the industry. Seven submissions were received.
12. The FIN paper has been prepared by the Ministry of Economic Development in consultation with Treasury. The Department of Prime Minister and Cabinet has also been consulted.
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