The Cellular Operators Association of India (COAI) has submitted the telecom industry’s recommendations for the upcoming Union Budget 2024-25 to the Ministry of Finance.
According to COAI, these recommendations will help enhance the financial well-being of the sector, which is crucial for fulfilling the government’s mission of digital empowerment and inclusivity for its citizens. The key highlights of the recommendations are as follows:
Abolish regulatory levies
Considering the huge capital that telecom service providers (TSPs) have to invest in the current scenario, especially for the deployment of 5G, COAI has recommended that the Universal Service Obligation Fund (USOF) levy be abolished. Alternatively, the government may consider the suspension of the USO contribution of 5 per cent of adjusted gross revenue (AGR) till the existing USO corpus of approximately Rs 80,000 Crore is exhausted.
COAI has also recommended that the license fee be urgently reduced from 3 per cent to 1 per cent, so that it just covers the administrative costs by the Department of Telecommunications (DoT) thereby relieving the TSPs from additional financial burden. Meanwhile, the industry is also concerned over the definition of gross revenue (GR). The present definition covers revenue from all telecom activities. This has created ambiguity because the term telecom activity is not defined clearly, so it may include revenue from activities believed to be incidental to telecom activity. Therefore, COAI has recommended that the definition of GR be made precise, stipulating that the revenue from activities for which no license is required should not be a part of GR.
Extension of carry forward of business losses from 8 years to 16 years for telecom sector
COAI has urged the government to address above concern by introducing a special regime for the telecom operators under Section 72 of the Income Tax Act, 1961 wherein the business losses can be carried forward and set-off till sixteen (16) assessment years from the existing 8 years. To prevent misuse of this extended time limit, a restriction can be put on dividend distribution wherein any dividend distribution within 5 years from date of utilisation or set-off of unutilised losses by the company can attract additional dividend distribution tax of 25 per cent (in addition to TDS), up to the amount of losses set-off by the company, on which no deduction or credit will be available to company or shareholder.
Exemption of service tax on additional AGR dues
COAI has urged the government to exempt service tax on the additional AGR liability arising from the Supreme Court judgment. Specifically, relief has been requested for the exemption from service tax payment for the period from April 2016 to June 2017, and on various services issued in November 2018. Alternatively, COAI has proposed that the government prescribe a streamlined, time-bound process for claiming a cash refund of the service tax paid under the reverse charge mechanism (RCM), which would provide significant relief to the industry.
Exemption of customs duty
Over the past 5 to 6 years, the government has gradually increased the customs duty on telecom equipment to 20 per cent, adding a significant financial burden on telecom companies and significantly impacting the rollout of 5G services in India. COAI has requested exemptions on customs duties for certain telecom equipment to alleviate the cost challenges associated with deploying this critical infrastructure.
Further, COAI has recommended that the customs duty be reduced to zero and then gradually increased depending on creation of ecosystem for manufacturing of telecom gear in India. Until high-quality equipment is available domestically at competitive prices, COAI has urged the government to reduce customs duties for 4G and 5G network products, as well as other related items, to NIL.
Exemption of GST
Currently, telecom operators pay GST under RCM on payments made to DoT for license fees, spectrum usage charges (SUC), and spectrum acquired in auctions. As a result, there is a significant blockage of working capital, imposing a heavy financial burden on these companies. COAI has urged for an exemption from GST under RCM on these payments. This will alleviate the financial burden by preventing further ITC accumulation and releasing blocked working capital. COAI has also requested that the government exempt GST on license fees, SUC, and spectrum acquisition fees to provide much-needed relief to the sector. Alternatively, it has proposed allowing the payment of RCM on government services through the utilisation of the ITC balance available in the electronic credit ledger.
Custom duty exemption for cable repair/installation operations in EEZ
Telecom companies heavily rely on submarine cables for high-speed transfer of data around the globe. The current customs duty exemption for vessels engaged in laying submarine cables in India is set to expire on September 30, 2024. The government must intervene urgently to extend this exemption to prevent increase in cable-laying costs. Such an increase could adversely affect the future deployment of submarine cables, potentially compromising the quality of service.
Commenting on the recommendations, Lt. Gen. Dr S.P. Kochhar, director general, COAI, said, “Over the past decade, the hovernment has undertaken several reformative steps to fuel India’s digital ambitions and achieve accelerated growth. The telecom industry plays a pivotal role in this transition providing affordable connectivity and inclusivity. Thus, reducing the TSPs’ levy burden and facilitating investment opportunities are not just an economic necessity but a strategic investment for the country’s future. We hope the government will consider these recommendations in the upcoming budget and help the industry navigate through these prolonged challenges. With 5G expected to catalyse digital transformation across sectors, we also urge the government to prioritise telecom infrastructure development. By doing so, the new government can set a precedent for visionary policymaking, driving India towards a robust digital future.”
