ZAIN 2022 All Rights Reserved
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Our Operating Context
Tax Challenge
Challenge
The tax landscape continues to change rapidly across the GCC and Middle East in response to Base Erosion and Profit Shifting (BEPS) actions issued by the Organization for Economic Co-operation and Development (OECD), posing challenges to taxpayers in areas including:- OECD Inclusive Framework’s agreement on taxing the digitalized economy and a global minimum income tax, commonly referred to as Pillar Two
- The continued roll out of the implementation of VAT across countries in the GCC
- The introduction of excise tax in the GCC
- The implementation of Transfer Pricing (TP) documentation and Country-by-Country Reporting (CbCR) obligations for multinationals based in and/or operating from certain GCC countries in compliance with BEPS Action 13
- The implementation of the Economic Substance (ES) requirements in certain GCC member countries
Additional Facts | Zain’s Response |
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OECD Inclusive Framework reaches political agreement on taxing the digitalized economy and a global minimum corporate income tax rate.Since 2017, the 141 member countries of the Inclusive Framework have been jointly developing a ‘two-pillar’ approach to address the tax challenges arising from the digitalization of the economy. This led to the publication of two detailed ‘Blueprints’ in October 2020 on potential rules for addressing nexus and profit allocation challenges (Pillar One) and for global minimum tax rules (Pillar Two).Pillar Two introduces a minimum effective tax rate of at least 15%, calculated based on a specific rule set, and applies to groups with revenues of at least EUR 750 million (USD 887 million). We note that the statutory corporate income tax rates in a number of GCC countries are below the proposed global minimum tax rate of 15%. The OECD estimates that under Pillar One, taxing rights on more than USD 125 billion of profit will be reallocated to market countries each year. The global minimum Corporate Income Tax (CIT) under Pillar Two – with a minimum rate of at least 15% – is estimated to generate around USD 150 billion in additional global tax revenues annually. Countries that do not currently levy a CIT or have effective tax rates below the proposed global minimum tax rate of 15% will have to make some key decisions to address the new rule. An ambitious and challenging timetable has been set with plans for both Pillar One and Pillar Two to apply from 2023. | Zain is closely monitoring the development around Pillar Two, as its implementation may have a significant effect on the regional tax landscape.
Although the details of Pillar Two are yet to be finalized, Zain is working with its advisors to understand the range of implications on the Group’s business. |
BEPS Action itemsThe transfer pricing documentation and Country-by-Country Reporting are gaining good momentum within the GCC region. Certain GCC countries have also implemented the Economic Substance requirements in compliance with BEPS Action 5. | Zain continues to employ professionals who are responsible for its tax affairs in every country in which the company operates. Zain’s tax teams follow a clearly defined set of principles and behaviors, along with Zain Tax Strategy, Tax Code of Conduct and Tax Risk Management Policy, which are also aligned with Zain Group’s Code of Conduct.
In response to OECD’s BEPS Action items, and the rapid changes in the tax landscape in the region, Zain continues to take the necessary steps to comply with the applicable standards in the various jurisdictions of operation. For example:
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The government of Kuwait is looking at introducing significant economic and financial reforms to improve the state’s growing deficits. The introduction of valued-added tax (VAT) and excise tax form part of the initiatives being proposed by the government. This is in line with the recommendations of international bodies, such as the World Bank and the International Monetary Fund.
The Kuwaiti government has proposed the introduction of excise tax in 2022 and VAT in 2023. It is estimated that Kuwait would be able to raise an additional tax revenue of KD 1.7 billion (approx. USD 5.6 billion) by 2025 following the introduction of the above taxes. | Zain Kuwait will continue to monitor this matter and ensure full compliance in accordance with the related laws and regulations. |
Double Tax Treaties
| Zain will implement the applicable provisions of the new DTT. |
During 2021, the tax authority in Jordan imposed social contribution tax to support the budget deficit, as follows:
| Zain Jordan has complied with the relevant changes. |
During 2021, the authorities in Iraq introduced the tax reform initiative as part of The White Paper project presented by the Cabinet. | Zain Iraq has been attending meetings and workshops with the Ministry of Finance (MoF) and presented its proposals to assist in the success of this tax reform initiative. Zain Iraq will continue to work with and support the MoF in its tax reform initiatives. |
The tax authorities in Sudan increased the following tax rates during fiscal years 2020 and 2021:
| Zain Sudan has complied with the new changes. |
Regulatory Landscape
Challenge
The global community and MENA region continue to face joint challenges in the regulatory field due to the COVID-19 pandemic. There are adverse economic implications such as spectrum licenses where the demand is greater than the supply in countries with limited resources; acquiring additional spectrum to accommodate the needs of new technologies and data growth; adherence to the changing policies and the establishment of new laws such as the laws to protect the personal data of customers and build cyber resilience, which is being driven by different regulatory bodies.
Zain Bahrain
Additional Facts | Zain’s Response |
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The TRA has postponed the award of 100 MHz for mobile network operators (MNO) in the c-band until 2022. | Zain Bahrain is prepared for engagements in the process of the frequency license award/renewal of (100 MHz in the c-band) that is expected to take place by the TRA in 2022. |
The Council of Ministers in Bahrain approved an increase in the standard rate of VAT from 5% to 10% with effect from 1 January 2022. | Zain Bahrain is prepared to adapt and review how the business needs to take action to ensure compliance by the effective date. |
Personal Data Protection Authority (PDPA) has issued eight draft Executive Orders addressing various elements of the Personal Data Protection Law. These touch on data subject rights, rules governing processing of sensitive data, etc. |
Zain Saudi Arabia
Additional Facts | Zain’s Response |
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Communications and Information Technology Commission (CITC) plans to conduct a spectrum auction in the 450 MHz, 600MHz, 700MHz, extended 2100MHz, and 3800MHz-4000MHz during mid to end of 2022. CITC issued a public consultation in this regard, seeking feedback from the market. | Zain plans to acquire c-band spectrum in the auction. In addition, the company will need to plan for a financial commitment towards the acquisition. |
CITC issued licenses to Salam and Future Networks Communication (FNC). Zain is actively engaging with both mobile virtual network operators (MVNO) in preparing up-to-date agreements, technical solution costing and on matters pertaining to lawful interception. Both MVNOs expect to launch commercial services no later than Q1 2022. | Integrated Mobile Telecom Co. Ltd. signed an agreement with Zain Saudi Arabia to benefit from Zain’s leading network infrastructure in order to provide mobile telecommunications services to its customers. This occurred after Integrated Mobile Telecom obtained a MVNO license from the CITC. |
Zain Iraq
Additional Facts | Zain’s Response |
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The Communication and Media Commission in Iraq (CMC) plans to have mobile number portability (MNP) launched in Iraq. MNP is not expected to become active before Q4 2022 due to delays in the initiation of the project. | Zain Iraq provided extensive feedback on the MNP process in which the CMC has taken Zain’s comments on board. The implementation of the MNP has moved to the end of 2022. |
CMC and National Security Agency will issue final regulations for e-SIM registration, customer electronic biometrics and signatures under the MEFS (Mobile Electronic Registration System) project, which is expected to become active by Q1 2022. | Zain lobbied with the CMC to implement the registration in line with best practices. The implementation process is ongoing with the CMC and National Security Agency to commence with e-SIMs initially in Baghdad as a pilot. |
Zain Jordan
Additional Facts | Zain’s Response |
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A joint initiative involving all operators commenced to assess the feasibility of introducing electronic Know Your Customer (KYC) and end-to-end digital customer onboarding to enhance customer experience and reduce costs. | Zain is supporting the implementation process as e-KYC is important for Anti Money Laundering (AML) and Countering the Financing of Terrorism (CFT) requires more than just a robust electronic ID in addition to overseeing SIM card registrations amongst other services. |
The Ministry of Digital Economy and Entrepreneurship (MoDEE) commenced an initiative to have the electronic transactions law (E-Transaction Law) revisited to facilitate trust and authentication services and certifications. | Zain will actively engage with the TRC as the new law aims to enhance e-commerce by clarifying the legal framework for doing business online or for developing contracts via electronic means of communication. The law also affords electronic records the same legal value as documents made in writing. |
Zain Kuwait
Additional Facts | Zain’s Response |
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In April 2021, CITRA issued Resolution No. 42 of 2021 concerning Data Privacy Protection Regulations. The regulations apply to all service providers that provide communications and information technology services in Kuwait. The new regulation calls for the obtaining of consent to process personal data, identification of parties to whom data will be disclosed, and notification of data subjects should data be transferred outside Kuwait. Service providers must issue privacy notices.
| Zain Kuwait continued discussion with CITRA about data, obtaining clarifications on how to process aspects of personal data. |
The Central Bank of Kuwait (CBK) recently agreed to grant financial electronic licenses to organizations looking to act as financial intermediaries on financial transactions. | Zain Kuwait is working on complying with Central Bank’s request for all operators to register in order to obtain the required license to act as intermediaries on any financial transactions. Zain Kuwait has already submitted its application for an Electronic Payment Infrastructure Provider (EPIP) license, which is expected in 2022. |
Zain Sudan
Additional Facts | Zain’s Response |
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The TPRA, supported by ITU and external consultants, issued the Strategic Market Review (SMR) report. The report highlights gaps in the telecom market in which the TPRA is conducting a public consultation and eliciting views. The regulator’s final decision has not yet been finalized. | Zain actively engaged with the related stakeholders to provide the required response based on TPRA instructions. |
The mobile tax on telecom services as a percentage of gross revenue increased from 7% to be 10% effective from January 1, 2021. | Zain is challenging this position and further discussions will take place with the sovereign council. |
Zain South Sudan
Additional Facts | Zain’s Response |
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Digitel, the new player in South Sudan, launched commercially in July 2021 with limited coverage inside Juba. | Zain will continue working with its partners to introduce innovative products and services to meet the needs of the South Sudanese community, with a set plan to introduce mobile financial services, including mobile money, money transfers and internet banking. |
Under the Personal Data Protection Law, a draft Data Protection bill is under review by the South Sudanese parliament. The government requested the MNOs provide their feedback on the draft. | Zain will actively engage in the public consultation request organized by the NCA to provide the proper required feedback based on the best practices. |
Climate Change
Challenge
Climate change impacts the MENA region through the rise in temperature, increase in droughts, and instances of extreme weather events. The impacts can lead to greater stress on existing tensions over resources such as food and water.
Additional Facts | Zain’s Response |
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| Zain continues to take a strong stance in reducing its environmental impacts across the board. It recognizes the impact on creating a new series of risks such as the rise in mean temperatures and increase in extreme weather. In addition, the company identified opportunities to become more resource efficient.
Zain continues to assess its emission targets across each of its operations and further improved the reporting process to ensure the company includes Scope 3 emissions. To learn more, please visit the Climate Change section on the Zain Group website and the ‘Our Climate Action’ section. |
Future Workforce Development
Challenge
Current global trends show the workforce of the future is transitioning as more jobs are shifting to automation and the use of artificial intelligence and digital solutions are transforming businesses. According to a paper published by PwC entitled: “Workforce of the Future”, the following trends are the forces that form the foundation of what businesses need to take into consideration:
- Technological breakthroughs
- Demographic shifts
- Rapid urbanization
- Shifts in global economic power
- Resource scarcity and climate change
Through the lens of these trends, the MENA region is considered high-risk as it experiences one of the highest youth bulges where governments are pressed to ensure enough jobs are created for the influx of youth. In addition, the skills gap is considered a significant challenge, with businesses and corporations finding it difficult to recruit needed skills and talent locally.
Additional Facts | Zain’s Response |
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| Zain continues to monitor its Workforce of the Future Development plan to ensure it aligns to the skill gaps, recruiting and retaining top talent. As a digital service provider, the company is highly susceptible to the automation and replacement of existing jobs and as such must ensure it continues to develop and reskill its workforce.
Through the assessment of required skills, Zain identified the following areas of expertise as essential components for its growth and continues to track the number of employees with such skills on a quarterly basis.
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