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Higher tax predicted for BSkyB

There is a growing risk that BSkyB, the satellite broadcaster owned 40 per cent by Rupert Murdoch, will face sharply higher tax charges after 1998, a City investment house will argue in a report published this week.

According to the report by ABN Amro Hoare Govett, the risk stems from proposed changes to the payments made by ITV companies to the Treasury, which are scheduled to be reviewed over the next 18 months. Companies which make high licence payments, notably Yorkshire-Tyne Tees and HTV, will be able to negotiate lower fees with the Independent Television Commission under the terms of their 10 year franchises.

The ITC is expected to calculate the amount ITV companies can afford to pay without jeopardising quality standards, particularly for regional broadcasts. This calculation will take into account the declining share of advertising revenues accruing to ITV companies, which face competition from cable, satellite and the new Channel 5.

The rationale for the higher taxes is rooted in the monopoly structure of the ITV system, where franchises have been known as "a licence to print money". New competition has eroded that commercial advantage, however. The ITV companies are also set to lose funding from the Channel 4 levy, which could be phased out by 1988.

Hoare Govett warns that the "rebalancing" of levies on TV companies will lower the amount the industry as a whole pays to the Treasury. This could encourage a Labour government to extend the tax base to include satellite broadcasters as well, which currently do not pay licence fees or the special "percentage of qualifying revenue" levied on the ITV sector.

The risk is expected to grow year by year, as non-terrestrial broadcasters take an ever-increasing share of advertising revenues.

According to a source familiar with the Hoare Govett report, "if the Government believes the TV industry makes super-normal profits and should pay super-normal taxes, then it will become increasingly inevitable that all broadcasters pay a share".

BSkyB, which currently benefits from tax losses built up in the early 1990s, when the expensive network was being developed, is expected to be liable for corporation tax by 1998, and City analysts have assumed as much in their forecasts.

But an additional tax, in the form of a payment based on advertising share, would be an added burden on the company, and could materially affect its high rating in the stock market.

Hoare Govett will add that BSkyB already faces increased regulatory risk as a result of an Office of Fair Trading investigation into its relationship with the cable industry, to which it supplies pay-TV programming.

Extending the base to include BSkyB would require new legislation, as the company operates a non-domestic satellite service and has not had to bid for frequencies or pay levies on its service.