Anxious signals from the telecom industry

Naveen Aggarwal, Executive Director, KPMG. Photo: Special Arrangement

Naveen Aggarwal, Executive Director, KPMG. Photo: Special Arrangement  

From a tax perspective, what the telecom sector expects from Budget 2010 is a simplified tax regime, says Naveen Aggarwal, Executive Director, KPMG.

Adding nearly 180 million subscribers in the last year alone to reach a total subscriber base of over 560 million, the Indian telecom industry continues to be the cynosure of all eyes, he observes, during a recent pre-Budget email interaction with Business Line. “This growth opportunity has attracted considerable international interest, which is apparent in the number of global telecom players looking to enter the Indian market. Nonetheless, the industry has been facing many challenges as well.”

Ongoing delay in 3G-BWA (broadband wireless access) spectrum auction in the country, uncertainty about the road map for number portability, and stiff tariff war among the players are some of the areas that Aggarwal mentions.

And he adds that, at a policy level, the industry expects rationalisation of existing revenue sharing licence fee, which could lead to cost/ operational efficiency. “The sector’s lead in the Indian infrastructure scenario would depend on continued support from Government.”

Here are excerpts from the interview in which Aggarwal puts the spotlight on the key demands of the sector on the taxation front, and speaks of what needs to be done to ensure affordability and promote foreign investments.

On phasing out/ set-off of additional duty of customs (ADC).

ADC/ SAD (special additional duty) levied at the rate of 4 per cent on imported capital goods is currently not available as credit to the operators as well as passive infrastructure service providers resulting in increase of overall cost of provision of services. To promote affordability, either ADC should be discontinued or setoff should be allowed against service tax liability.

On the National Calamity Contingent Duty (NCCD).

The one per cent NCCD imposed on mobile phone increases its costs. This levy has adverse impact especially to entry-level mobile phones extensively used in rural sector. Further, it offers arbitrage in favour of grey market. Hence, in order to achieve larger penetration in the rural segment and discourage grey market, NCCD should be discontinued.

On simplification of procedural issues under service tax.

Telecom operators pay commission and allow trade margins to their distributors in the normal course of business. Currently, service tax law provides for individual registrations, charging, collection and payment of service tax by all distributors which is administratively difficult to ensure compliance.

To simplify, the liability to discharge service tax may be shifted from distributors to telecom service providers. A similar scheme is already in place for insurance industry.

On tax holiday.

In line with other infrastructure providers, the industry is hoping for extension of the tax holiday under Section 80IA to all new operators and those expanding their operations into new circles. Tax breaks to telecom infrastructure service providers would also immensely help in cutting down costs, and thereby would assist in reaching the rural subscriber faster.

On corporate re-organisations.

Continuity of tax holiday on transfer of eligible telecom undertakings in corporate re-organisations is another expectation of the industry. This benefit, thus far available to mergers /amalgamations effected till March 31, 2007 if extended with adequate safeguards, would assist consolidation of telecom undertaking and legitimate business re-organisations.

On clarity on tax deductibility of upfront charges for 3G/BWA.

For allocation of 3G/BWA, service providers would be required to pay huge amount of upfront spectrum charges. To avoid any dispute around tax deductibility of upfront spectrum charge, a specific clarification is expected for amortisation of the same evenly over the licence period under the existing provisions.

On tax withholding in the case of inter-company payments.

The telecom industry involves several inter-company transactions between operators such as inter-connect usage charges, use of passive infrastructure, and network management services. Clarity on tax withholding obligations on such transactions would help in reducing tax disputes and increase operational efficiency of the service providers through improved cash flow.

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Printable version | Feb 20, 2020 7:40:43 PM |

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