Telecom service providers have sought a reduction in licence fees, removal of goods and services tax (GST) on those fees, spectrum acquisition charges and spectrum usage charges, besides a refund of input tax credits along with tax and custom duty exemptions in the upcoming budget.
To this end, Lt. Gen. Dr. S.P. Kochhar, director general (DG), Cellular Operators Association of India (COAI), said that the COVID-19 pandemic has illustrated the critical importance of telecommunications in enabling a digital economy. Despite the challenges brought by the pandemic and the ongoing financial worries, the telecom industry in India managed to contribute during the COVID-19 lockdown. Telecom services have evolved as an essential service like water and electricity. Today, it is not a vertical industry anymore, but contributes horizontally to running and stimulating the growth of other industries as well. The telecom network in India covers more than 500,000 villages. Though the average revenue per user (ARPU) is under pressure, operators in India have managed to reach among the top contributors in foreign direct investment (FDI) over the last two decades. The industry contributes nearly Rs 580 billion p.a. to the government exchequer. With a total of Rs 11.24 trillion investment till date, telecom has emerged as the second-largest sector in terms of private investment in infrastructure. Since 2010, the industry has spent Rs 3.68 trillion in spectrum auctions alone.
Further, he added that in this challenging time, the industry also faces major upcoming expenses on infrastructure upgradation like spectrum auction, 5G introduction, network expansion and fiberisation, which is very critical for providing future communication services for nation-building and rising aspirations of the country.
COAI has also proposed certain recommendations. In terms of regulatory levies, it said that, currently, the total licence fee (LF) having a rate of 8 per cent of adjusted gross revenue (AGR) is uniformly applicable to all licensees, of which 5 per cent goes to the USOF and the remaining 3 per cent is levied as LF. The industry believes that the current unutilised corpus is sufficient to meet the objectives of the USOF. International benchmarks show that India’s LF percent is way above the world average. Given the above, the industry recommends that the LF is brought down to 1 per cent from 3 per cent at the earliest to cover admin costs by the DoT/Government. USOF need to be abolished. In addition to this, the industry demands that the effective rate of the spectrum usage charge (SUC) be reduced by 3 per cent for all the TSPs.
Further, in terms of GST, COAI requested for removal of GST on LF, spectrum usage charges and payment of spectrum acquired in auction. It added that, levy of GST on LF, spectrum acquisition charges and SUC is compounding the operational challenges. Thus, the industry recommends that in line with the international practice, payment of regulatory levies made by telecom operators should be exempted from tax under GST. Alternatively, at present, GST is being paid by the operators under Reverse Charge Mechanism (RCM). Input Tax Credit (ITC) arising out of this is creating a huge imbalance with outward liabilities. For industry, it involves the heavy cost of funds for compliance, whereas for the government, this is revenue neutral. In the above context, GST would not be applicable on the LF, SUC, and Spectrum Acquisition Fee would extend a huge relief to the entire industry. Alternatively, permit payment of RCM on Government Services from ITC balance.
COAI also requested for refund of unutilised ITC of Rs 350 billion. The current market dynamics has led to the accumulation of massive ITC. The credit would further increase with upcoming significant capital expenditure to further enhance customer experience and achieve the vision of a digital India. The industry recommends suitable amendments in the GST law may be made to allow a refund of unutilised ITC. Alternatively, an unutilised amount may be applied to other government liabilities of operators.
In terms of service tax exemption and clarification, COAI requested for service tax on right of way (RoW). The DGGSTI across india has been pursuing for recovery of service tax on RoW service from central/ state governments and the development authorities in respect of the past contracts. To address this issue, in November 2018, the government allowed an exemption for service tax on RoW services by local authorities. However, the industry recommends that the scope of the exemption be expanded to include ‘appropriate authority’ as defined in RoW rules in addition to the exemption granted to the ‘local authority’. In short, the Scope of Local authorities either need to be widened or the phrase need to be amended to include State or Central Government including but not limited to the Departments of State and Central Governments. It is also requesting for Service tax on AGR. Prior to the SC decision on AGR dues, the telecom operators were under a bona fide belief that only core revenues should form part of the AGR. Accordingly, the entire industry believed that LF and SUC were not required to be paid on non-core revenues. The said belief and practice were also in consonance with the order of the TDSAT passed in 2015. Telecom Operators as a matter of general practice were making payment of Service tax on LF and SUC paid to the DoT and were availing full credit of the same. Levy of service tax today on the incremental AGR would be an unjust cost for the sector. The Industry recommends for relief by way of exemption from payment of service tax for the period of April 2016 to June 2017.Similar exemptions from payment of service tax on various services have been issued in November 2018 (service tax on ROW charges for the period April 2012 to June 2017). Alternatively, Government may prescribe a time-bound simple process to claim cash refund of the Service tax to be paid under the RCM.
Further, the telecom operators requested for exemption of custom duty on certain telecom equipment which presently increases the cost of rolling out critical infrastructure. In this regard, it said that around 85 per cent of the telecom equipment’s are imported under chapter head 8517. BCD of 20 per cent is levied on import of most of telecom equipment like antennas, optical transport equipment’s/ networks, IP radios, MIMO/LTE products, switches, VoIPs etc. Further, it said that higher duty of customs on the telecom equipment disrupting the cost-effectiveness of the telcos. This is disrupting the cost-effectiveness of the telcos and impacting the financials of the sector negatively. An exemption from the levy of BCD should be granted on the Telecom equipment under CTH 8517 which has been increased w.e.f. October 11, 2018. Also, till the time good quality equipment is available in India at affordable price, customs duties for the 4G/5G related network products along with other related products should be brought down to NIL.
