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By: MarkJ - 1 July, 2010 (11:42 AM)
uk fibre optic broadband taxThe Valuation Office Agency's (VOA) controversial fibre optic broadband tax (Fibre Tax), which essentially taxes the rateable value of the basic infrastructure, looks set to become even more unfair than it already is. New changes due to come into force this month will reduce the rateable value for larger ISPs but leave the entry cost of smaller operators unchanged, further widening an already significant gap.

Small operators already find the Fibre Tax to be grossly unfair. Back in February 2010 Vtesse claimed that the VOA taxes its fibre network in a different way from big operators like BT , which results in higher and thus unfair costs. The problem is well known and Vtesse, which lost its initial challenge at the Court of Appeal, is now pursuing it through the Supreme Court (here).

Tony Ballard of Harbottle & Lewis, the law firm representing Vtesse, said:

"We believe it's fundamentally discriminatory for one company to be taxed at this massively higher rate. Unless a fairer means of taxing such companies emerges, there's going to be a diminution of enthusiasm among potential entrants to the market."

One problem is that the VOA charges an annual fee of £2,000 (outside London) - £3,000 (within London) for the first kilometre of fibre optic cable. The tax is paid as soon as the fibre is lit (becomes active) and ignores whether or not the operator actually makes any money from it.

As you might expect, smaller operators need to run a lot of individual fibre optic cables over shorter distances than 1km. For example, if an operator has to stick a cable down over several metres - such as to connect up a home to the main junction - that could easily end up attracting a cost of several thousand pounds.

Peter Caplan, Co-Owner of dark fibre specialist Fibrespan, told PC Pro:

"Broadband is not just about about consumers it's about businesses too and making them competitive. But they are often forced to take a managed service from someone like BT because they cannot afford or justify the £3,000 minimum annual fee for their own fibre.

That means they are in the hands of providers who might restrict or limit bandwidth, which can be really damaging for a company that, for example, works in the film or TV industry and has large files to move around quickly."

As Vtesse complained earlier this year, BT are not taxed per kilometre but based on the overall rentable value that the VOA deems is available for their network, averaged over 5 years. That certainly makes life a lot easier for BT, to say the least. The VOA also asses what BT should pay by looking at its profits, it does not apply the tax as soon as the new fibre is lit.

Prior to the general election the Conservative Party had pledged to review the Fibre Tax (here), with a view to making it fair. To date we have not heard any concrete commitment to carry this forward from the new coalition government, which includes Liberal Democrat members.

The new Minister for Culture, Communications and Creative Industries, Ed Vaizey, said in November 2009 prior to his appointment:

"No-one's prepared to take responsibility for the whole picture. We see policy shared between a bewildering array of government bodies and quangos. This is something I intend to fix. No matter that the VOA claims that this is just an extension of the existing policy - it's still damaging."

Until this is resolved the unfair Fibre Tax remains the single biggest barrier to effective and affordable deployment of superfast 100Mbps capable fibre optic broadband networks in the UK. It's also likely that this news item may be the first time that some smaller operators hear about the change. Fibrespan claim not to have known about the adjustment and only spotted it by chance.
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