Clear tax maze in telecom

Last budget was disappointing for the telecom sector and so the sector is keeping its fingers crossed this time around. Telecom tariffs in India, already the lowest in the world, will fall further if the finance ministry accepts DoT’s repeated demands for a reduction in the levies.

Endorsing the demand of service providers, DoT has repeatedly sought for a simplification of the regime by replacing multiple taxes with a single levy at a reduced rate to lower burden on operators. This stems from the fact that telecom levies in India are amongst the highest in the world, as taxes paid by operators account for a whopping 30% of their revenues as against 5-7% in other Asian countries.

Explains Manoj Kohli, president, Bharti Airtel: “An issue plaguing the sector is multiple levies in the form of licence fee, spectrum charges, ADC, service tax, etc. States too impose levies like stamp duty, entry tax and octroi and levies on towers. A single levy would keep things simple and transparent and would reduce administrative burden on the government.”

Industry sources expect that the finance ministry may accept another long-pending demand of service providers, DoT and Trai to reduce annual revenue share, or licence fee, to a flat 6%. Currently, telecom companies shell out 6-10% of their aggregate gross revenues (AGR) towards licence fee, based on the circle of operation.

DoT favours a flat 6% revenue share, as this would bring telecom services in line with the licence fees paid by national and international long-distance operators. This will also rationalise levies across different services. Telecom licence fee is among the largest contributors to the government kitty and the budgetary estimates for 2006-07 puts this figure at Rs 6,024 crore. Addressing concerns raised by the finance ministry, DoT has pointed out that despite a 9% reduction in the revenue share for NLD and ILD operators, licence fee for 2006-07 is expected to decline marginally, thanks to phenomenal growth.

“Tariffs can be further brought down by effecting a uniform revenue share licence fee for all circles, which could easily be rationalised, down to 6%. Any apprehension about a drop in revenue collection from the sector is unfounded given the rapid growth of the sector,” said a top executive with a telecom operator.

Secretary general of the Association of Unified Service Providers of India, SC Khanna, adds: “If levies are reduced and service tax increased to 14% from 12% concurrently, it could hurt the sector.”

The budget may also see an increased allocation towards subsidies for rural telephony from the Universal Service Obligation Fund (USOF) from a mere Rs 1,500 crore last year. Considering that DoT has invited bids for setting up 8,000 telecom towers at an estimated cost of Rs 4,000 crore, where the government will provide the capital to set up these towers from the USOF through a bidding process.