Darling must cut tax on fibre

• Tags:
• Tax,
• Broadband,
• Fibre,
• Budget

Jeff McKeown ZDNet.co.uk

Published: 12 May 2009 15:27 BST

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If chancellor Alistair Darling were really serious about boosting the digital economy, he would rethink the tax on fibre-optic links, says Jeff McKeown.

In last month's Budget, chancellor Alistair Darling seemed proud of his allocation of extra funding to extend the broadband network and to 'deliver the vision' of the Digital Britain report.

Even if we set aside the hugely underwhelming nature of the 2Mbps proposition, he has clearly put little thought into the ground-level reality experienced by businesses trying to compete in the communications market.

Over the past decade, the government has been charging a business rate tax on any company trying to light up dark fibre networks and boost the digital economy. This tax creates a significant barrier to smaller-scale service providers entering the market.

Bold measure
The chancellor quite readily lifted the stamp duty threshold on homes to £175,000 and arranged a payment holiday to help new starters get on the property ladder. But how about an equally bold measure to help the networking world?

It makes little sense to apply the same assessment of tax liability to a short length of fibre as it does to a more extensive network. With the administrative cost involved in declaring the asset, raising the invoice and settling the bill, the situation quickly arises where the cost of securing the tax revenue outweighs the tax value.

Take, for example, a typical situation where two buildings within a business park need to be connected, perhaps for business continuity purposes. The bill for a pair of fibre filaments for this kind of short-range link could be between £25 and £100. Is tax revenue of this value really worth the administrative effort it takes to collect?

The government is happy enough with the principle of a minimum threshold for personal taxation, so why not apply this concept to businesses? Every individual in the country is allocated a personal allowance above which income tax is due. If a company is to be considered a standalone legal entity — comparable to an individual with a personal allowance — surely it should benefit from similar financial leeway?

Again, drawing a parallel with the stamp-duty margins, the government should set a minimum fibre threshold before tax is due — perhaps 17.5km or 175km of fibre? One fibre pair point-to-point, or a fibre ring up to 175km with no tax; or two fibre pairs point-to-point or ring up to 87.5km with no tax; and stepped payment thresholds thereafter.

Adding a payment holiday of three years, for example, to fibre deployments at or just above the minimum threshold, would then create the opportunity for smaller operators to get started and encourage a realistic deployment of the community networks that currently feature in Lord Carter's dreams.

Jeff McKeown is sales director at copper and fibre-optic communications specialist Fibre Technologies.

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