MTN : Transcript of MTN Ghana GRA tax assessment_ 16 January 2023

Transcript of MTN Group call on MTN Ghana

notice of tax assessment Date: 16 January 2023

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Transcript of MTN Group call on MTN Ghana notice of tax assessment

16 January 2023

Thato Motlanthe

Good afternoon to everybody. I hope you've all managed to take some time off over the past few weeks and wishing everyone all of the best for the year ahead. Thank you for joining us on this call, which aims to provide some further context on the Ghana Revenue Authority or the GRA's tax assessment, which was issued to MTN Ghana. This follows the announcements made via the Ghana and Johannesburg stock exchanges last Friday afternoon on the 13th of January; it is also posted on the respective MTN Ghana and MTN Group websites.

My name is Thato Motlanthe, head of Investor Relations at MTN, and just introducing the team from MTN on the line with me. This afternoon from the Group we've got Ralph Mupita, Group CEO; Tsholo Molefe, Group CFO; Ebenezer Asante, Senior Vice President of Markets, and from MTN Ghana, we have the CEO Selorm Adadevoh and CFO Antoinette Kwofie. So today's call is scheduled for up to 45 minutes and will be focused on the issue at hand, also bearing in mind that we are in closed period for the full year results to December 2022.

Given the nature of this matter, as well as the ongoing engagements and processes, we are relatively limited in what we can discuss with you, but in that context, this call aims to provide you as much colour as possible on the matter. So we'll kick off with an outline of today's agenda, and brief background from Ralph, who will hand over to Selorm, who will unpack the matter a little bit more in terms of CDR and methodology. Ralph will then come back for some closing comments and next steps, before we open up for a short Q&A session. For the Q&A session, please type out your question in the question bar, which I will read at the end of the session. So, with that introduction, let me hand over to Ralph.

Ralph Mupita

Thanks very much Thato and a very good afternoon, and Happy New Year to everybody who is on the call. We appreciate you joining us for this call where we look to give you a bit more colour, and as Thato has mentioned that there will be some issues that you may want to raise that we will not be able to go through as the matter is ongoing. And it is a situation that is developing, so you would well appreciate that in as much as we give you quite a bit more colour, there are still ongoing conversations that we're having with authorities in Ghana on the matter, and we wouldn't want to prejudice those in a full discussion here.

So, in terms of the agenda for the call, we'll run through three topics or themes as follows:

• Firstly, on the agenda is the background on the GRA matter, and what brings us here today.

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Transcript of MTN Group call on MTN Ghana notice of tax assessment

16 January 2023

• Second is to provide some high-levelcontext on the CDR-basedmethodology used by the GRA's third-party consultants, and what this implies. This will include some colour on how audits are traditionally conducted and that will be covered by Selorm.
• Finally, we will talk about what the next steps could look like, and then we'll move into Q&A session at the end.

So, to starting with the first agenda item, which is the background and context to the matter at hand. In Friday's announcement, you will recall that MTN Ghana was issued with a tax assessment by the Ghana Revenue Authority, or GRA. This was received by MTN Ghana on 11 January 2023. Following engagements with relevant authorities, the GRA subsequently issued a temporary withdrawal of the assessment on 13th January; a temporary withdrawal is effective for 21 days in order to allow for further engagements between MTN Ghana and the GRA, and other parties.

The background to this stems from an audit of MTN Ghana commenced by the GRA in 2019. The objective was to give assurance on the reliability and completeness of revenues declared by MTN Ghana for the purposes of calculating taxes. The audit covered the period 2014 to 2018. For this particular audit, the GRA used a third-party consultant, as well as a new methodology based on CDRs, call data records, and other data such as recharges. Selorm will give further insights on this shortly. What we can say is that this is a locally registered consultant that had offered its services to the GRA. Let me add that prior to this audit, the GRA had not issued MTN Ghana with any prior guidelines and standards relating to this new CDR-based methodology used for audit, which was applied retrospectively. As MTN Group and MTN Ghana, we strongly dispute the accuracy and basis of the GRA's assessment, including the third-party consultants' methodology used in conducting the audit. It is important to also emphasise that we believe that MTN Ghana has paid its due taxes during this period under assessment.

In May 2021, after consultations and discussions between MTN Ghana, MTN Group, the Minister of Finance of the Republic of Ghana, and the GRA, the parties agreed to an independent review by a global and well-recognised professional services firm, whose name we aren't able to disclose at this time. The independent review was then commissioned by the GRA in September 2021, which MTN Ghana fully cooperated with throughout the process. The independent review and its content is one of the issues we are not able to discuss at this point. But suffice to say, it found that it was not able to support the conclusions reached by the GRA's third-party consultants, as the basis for the assessment. Despite this, the GRA proceeded to issue the assessment to MTN Ghana for an amount of approximately 8.2 billion cedi in back taxes for the 2014 to 2018 period. At current exchange rates, that's about US$773 million or R13 billion. This amount includes penalties and interest charges. So, if you exclude these and take just the base component of the assessment,

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Transcript of MTN Group call on MTN Ghana notice of tax assessment

16 January 2023

the GRA infers that MTN Ghana under-declared its revenue by approximately 30% over the five- year period in question; that's the basis, the 30% is based on our calculations. Again, we strongly dispute this and will defend our position.

We have had a similar matter arise prior to this, in a couple of other markets, which we successfully challenged and defended, and they did not get to the assessment stage. So, to be clear, it is not the first time that we have seen the CDR-based methodologies being brought forth by tax authorities across our markets.

So, in terms of where we are at the moment, the GRA subsequently issued a temporary withdrawal of the assessment to enable further engagements, and we are super focused on this, and will provide more colour on next steps after Selorm has spoken. To be clear, we are also quite resolute in our position in this case. And from a financial perspective, we hold no provisions, and no contingent liabilities have been raised against this assessment in Ghana. We think that's a very important message to give to investors and broader stakeholders. We are comfortable with this position, as are the auditors who conducted the audits in the period under review. I hope this provides some broad context to the events, our position on the assessment, and I'll now hand over to Selorm, the CEO of MTN Ghana, to provide some details as outlined in the other agenda item. Selorm over to you.

Selorm Adadevoh

Thank you, Ralph and Thato. Good afternoon to you all and thank you once again for making time to join us on this call. I will speak to point two of today's agenda outlined by Ralph, which is to touch on the CDR-basedmethodology used in the audit of MTN Ghana. Let me preview this by noting that traditionally audits are conducted using international best-practice methodologies. For the telecom industry, revenue recognition is anchored in IFRS, which requires revenue be based on subscriber usage of network services. The approaches here include cash to revenue analysis, which derives usage based on adjusted cash receipts. Another, which is the more common method in our industry, is the usage approach. This calculates usage based on the direct analysis of network data. Again, both of these methods are aligned with IFRS international standards.

I will now turn to the CDR-based methodology, which was used by the third-party consultant for the GRA's 8.2 billion Ghana cedi tax assessment, including penalties and interest charges. To first set the context, some of you may know that a CDR, or call data record, is essentially any event on the network that is recorded. CDRs can include revenue-generating events. So as an example, an activity by a customer, like making a call, or browsing, that results in the balance being depleted, is revenue generating. CDRs can also include a variety of non-revenue generating activities, such

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Transcript of MTN Group call on MTN Ghana notice of tax assessment

16 January 2023

as activating a welcome service, cancelling a service subscription, an incomplete transaction, and also service or product promotions. There are multiple system nodes that generate CDRs. According to the platform vendor we use, who provide services to over 180 clients globally, the particular CDRs analysed in this assessment were not designed for revenue recognition, but for understanding events on the system. Secondly, a large proportion of the CDRs are not actually related to revenue-generating events. Thirdly, CDR sequences can be disrupted by system interruptions, space limitations, and other types of network event. As a result, we disagree with this methodology as a basis for calculating revenue and computing taxes. And as mentioned, the conclusions from this methodology could not be supported by the independent review. Given where we are in the discussions and processes with the relevant authorities, including the potential for any dispute processes, we are unable to get into further detail at this stage. I hope that this does provide you with a broad sense of what is being referred to. I will now hand over back to Ralph, to talk about next steps and concluding remarks. Thank you.

Ralph Mupita

Thanks so much Selorm. And so in wrapping up, before we take Q&A, let me talk to what we see as the next steps. As mentioned earlier, we are in engagements with authorities in Ghana for the next 21 days under the temporary withdrawal of assessment. We are very focused on working through a positive outcome, and we are engaged both at MTN Ghana and Group levels, boards and management, with the authorities.

You may well ask what would happen in the event that a workable solution is not reached. In that case, there's an established dispute process in the Ghanaian tax codes, where we'll be able to challenge the assessments, and of course, that is a consideration for after the 21 days if needs be. In the course of the next three weeks, we aim to reiterate our opposition in relation to our tax status and continue to challenge the methodology used for the audit. For your information in terms of potential further steps, should we not be satisfied with the outcome we are then able to follow the dispute processes as outlined by the tax codes in Ghana. It is important for us to reassure you as our shareholders and other stakeholders that MTN Ghana is a responsible business with an absolute commitment to transparency, good corporate governance and compliance.

You would appreciate that as a publicly traded company, MTN Ghana does comply with fairly onerous requirements in this regard. The company prepares and submits its financial statements, which are audited in accordance with international accounting standards, and results are reported on a quarterly basis. But MTN Ghana submits monthly, quarterly and annual statutory reports to the regulators and the GRA. Moreover, MTN Ghana is the leading taxpayer in the country, and has been duly recognised as such over the years.

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