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In order to deliver necessary communication service in the remote rural area, establish network newly and expand it the USOF was established in 2001 and its activity was started in 2006. The initial purpose of the fund was to deliver mobile network service to soums and settled area and at that time the number of mobile phone users per 100 people was only 19.
Through introducing mobile communication service in over 100 soums and settled area at the national level of Mongolia for the next three years after establishment of the fund the number of mobile phone users per 100 people was increased and became 82.2 by 2009 and it was success to be named as the international best practice. Particularly, a legal entity, which is conducting communication service must give two percent of taxable income to this fund.
Recently as result of control and examination in the activities of the special funds of the Government, the law on the special fund of the Government was renewed and updated and adopting it with the state budget of Mongolia of 2020 in the State Great Khural and it is specified “The capital to centralize from the legal entity, which is conducting communication service, to the USOF shall be equal to 3 percent of net profit after tax”.
In connection with it joint statement was made from the Mongolian Information and Communication Operators Association, Mongolian Business Council and Mongolian Chamber of Commerce and Industry.
Clarification was made about it from Executive director of the Mongolian information and Communication Operators U.Tamir.
-When the State Great Khural adopted renewed composition of the law on Special Fund of the Government, your association and other NGOs, which protect business interest, made statement. In which reason was the statement made?
-All the business entities, which conduct communication service, have given two percent from taxable income to the USOF.
Contested that it has changed to give three percent of net profit in the following year. How ever we gave official request and explanation to consider this issue to the Ministry of Finance and the standing Committee on Budget of the State Great Khural, speaker and members of the State Great Khural during the discussion at the State Great Khural for the stage of discussion, it could not achieve the result. Whereas, the Minister of Finance explained that depending on our suggestion and request the amount of capital to centralize to the fund was decreased and our load was reduced, as calculation money amount to pay must have not been decreased and its must have been increased.
For clarification, larger group companies have had several subsidiaries, which hold exclusive License separately according to the network and service disconnected policy adopted by the state Great Khural on holding exclusive license on network and service separately. But to draw capital to the fund it is estimated from each exclusive license holder and thus subsidiaries must pay to the fund and have to pay once more from dividend distributed to the parent company. There fore actually our load has not disburdened. Also one of contesting grounds is that net income is private property of the company. Disqualifying cost from income. It pays taxes, balanced net profit is for developing new product and the balance is distributed to shareholders in dividend. There fore net profit is a private property of the company and to trespass upon the private property means infringing the Constitution.
Net profit is a private property of the company. By specifying in the taxation laws tax has categories including tax, fee and payment. But capital to centralize to the above mentioned fund does not refer to any of these categories. Also we consider that in the law on the above mentioned fund it refers to the fund which majority of its source is constituted in irrevocable aid
And donation, but capital must be centralized to the fund from our property in taxation and additional taxation pressure is creating for us.
There fore our payment of three percent tax additionally does not meet with the fundamental principle on provision of justice and equality declaring in the Constitution of Mongolia and principles of the general law on taxation to be fair and effective in activities to impose and collect tax.
-How many companies belong to your association?
-Our members are leading operator companies to build development of communication sector in accordance with world tendency including Mobicom Corporation, Skytel, Unitel, Mongolian Telecom, Netcom, Mobicom Networks and Skynetworks.
The main purpose of the association is to establish fundamental infrastructure of digital transformation in the future development of Mongolia, work leading in creating solution based on digital technology, improve business environment, pay attention to develop policy coordination and regulatory decision and solve the problems in the cooperation with the governmental agencies and Communication Regulatory Commision.
The Associations highlighted one of the issues required improvement has been policy and activity of the USOF when it determined pressing issues starting to conduct its activities two years ago. There fore we have put this issue of the fund to all the related stages for two years.
- Which problems have created? Which requirements put to improve it?
- First of all, it is required to renew the policy of the fund.
When the fund was established firstly, objectives to accelerate transformation process of communications sector into the market relations and deliver service at soum level.
In the latest period communications sector has liberalized completely fibre network has reached to over 300 soums, 3g and 4g technologies of mobile communication have introduced completely in all soums and settled area. The number of mobile phone users per 100 people became 130.3 and all the soums and settled area connected to internet service. Made by the Government recently, our country has been ready as for infrastructure in the Digital transformation over country.
issued functions of the fund to issue and implement policy and put control to the government agency.
We have considered the purpose and objectives established the fund, have been provided completely. There fore for recent years spending the capital of the fund not for its purpose has increased. We considered that at the present time the fund lapsed from the main purpose and objectives to deliver network and service to the target market, which is impossible for business development in the commercial meaning and it converted into the system, which lapsed from the international standard.
Secondly, too much general coordination was reflected in the regulation on coordination of the fund activities and substantial changes have not made since its establishment in 2009 and thus activities of the fund have been non-transparent and there has been no control system to put control on choice, efficiency and quality of implementing projects.
Generaly there has been legal distortion in the law on Communication issued functions to develop and implement policy of the fund and put control to a governmental agency. The main reason of distortion has been developing policies itself, implementing itself and putting control on itself.
Also we consider that centralization of the fund has been discriminating and unfair. There have been over 500 business entities, which are holders of exclusive license on communication service provider. All of the entities must pay commission of two percent. But fewer has given it and members of our association has constituted 70-90 percent of the annual capital.
It has not been clear how much other companies have paid and which responsibility has been hold in case they have not fulfilled their obligations. Except it centralized capital have been spent not for its purpose. Any capital has not distributed to the fund from the state fund, any other sources including other donation and aid have not been searched and its source has limited in money taken from us. In this case there have been no ways to talk about the capital of the fund for us, which has centralized mostly it. According to the procedure of USOF Supervisory Council, which consists of capital concentrators, must work. How ever from last year representation of directors of our members inserted into this supervisory council, it has not been clear how the supervisory council and which rights and duties it has and thus opportunities to put control have not been issued to us.
-Said that spent money of the fund for inefficient things. Made examination to the state special funds at the beginning of the year. Which infringement revealed in the USOF during this period?
-Our association has given the appropriate explanation on problems, infringement and weakness caused to our fund and information on the international experience to the Ministry of Finance from the beginning of the control and examination in the activities of the special funds, made by the Ministry of Finance. We have not had any information about the examination results.
It is prohibited to spend capital of the fund not for its purpose either in the law in Communication or in the law on the special fund of the Government. But infringed it and utilization of the capital of the fund not for its purpose, has increased year by year. Particularly, has spent not for its purpose or for training, survey, promotion and preparation of manuals and has spent to close operational deficiency of some state owned companies. For 2010-2018 totally MNT 24.1 billion was centralized to the fund and over MNT 4.2 billion was used not for its purpose. We have created case on this issue at the primary Administrative Court.
-Do you consider how to work correctly in the future?
-Generally, universal service policy does not mean to put purpose to deliver advanced communication service and must provide citizens in communication service and eliminate market gap furthermore.
It is determined in the developed countries including Australia, France and European Union to deliver mobile service to the rural area. The European Union put purpose to deliver wide band internet to 50% of households. But in developing countries it directs much more to create opportunities to people to accept telecommunication service from any middle point. By the present time in 69 countries there has been legal coordination for the operation of the USOF. But only 38 percent of these funds have conducted their operation actively, 14 percent have conducted operation on renewal and improvement and 48 percent have not run their operation.
Also 38 percent of them renewed their purpose, in other words changed to deliver internet service and balanced 62 percent have kept their purpose to deliver service to people of long distance area with low income and of vulnerable group. There fore countries have refused to utilize this method and have searched for different effective method and prefer public and private sector partnership method.
In our country USOF executed the initial purpose and obligation. There fore however nowadays in our country the USOF executed its initial purpose and obligations, in case of following the policy to continue operation of the fund, it is necessary to make conclusion on the previous mistake and operate the fund in a new version. It must start to determine universal service policy newly. It has raised objectives to increase consumption in the market in the international standard and to be force to increase demand of advanced service and mainly have followed the principle to be based on result.
For example, to increase capacity of internet service and introduce internet service some countries have used methods to render financial assistance to schools and render special financial aid to the long distanced area. Currently, Mongolia has started to determine and implement policies to implement Digital transformation and can consider the direction to increase digital access and application of e-service.
Finally, additionally it must consult with investors of the fund, make new organizational structure to determine policy, objectives newly, improve mechanism of governance, to be efficient and transparent and make assessment regularly.
