Budget 2024: Telcos dial Fin Min seeking tax reforms, duty relief in 5G gears

Budget- FM- PM-

Ahead of the Union Budget 2024-25, private telecom operators have urged the government to bring in tax reforms to improve the financial well-being of the sector. They also want customs duty on telecom equipment for 4G and 5G networks to be reduced to zero to alleviate the cost challenges associated with deploying this critical infrastructure.

In their recommendations for the upcoming Budget to the Ministry of Finance, telcos like Reliance Jio, Bharti Airtel and Vodafone Idea said that there is a need to abolish regulatory levies such as Universal Service Obligation Fund (USOF) and AGR, besides reducing the Licence Fee from 3 percent to 1 percent which, according to them, will relieve them from additional financial burden.

While suggesting the abolition of USOF, the telcos said that the government may consider suspending the USO contribution of 5 percent of AGR until the existing USO corpus of approximately Rs 80,000 crore is exhausted.

“The telecom industry plays a pivotal role in this transition providing affordable connectivity and inclusivity. Thus, reducing the levy burden on the service providers and facilitating investment opportunities are not just an economic necessity, but a strategic investment for the country’s future,” said SP Kochhar, director-general of Cellular Operators Association of India (COAI).

The representative body of all three private telcos, said that the industry is concerned over the definition of gross revenue (GR). The present definition covers revenue from all telecom activities, which 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, the COAI recommends that the definition of GR be made precise, stipulating that the revenue from activities for which no licence is required should not be a part of GR,” the association said in its recommendations to the ministry.

The body said cash flow and projections of some of the players in the telecom industry have been adversely impacted after the Supreme Court Ruling of 2019 in the context of the calculation of adjusted gross revenue, whereby telecom operators are required to pay additional AGR dues basis the revised computation, over a longer period.

The telecom sector requires frequent large capital investments due to technological advancements, which stresses the industry.

“Business losses can only be carried forward for eight years, which may not be sufficient for companies with longer recovery periods. To address this, it is urged that the government introduce a special regime under Section 72 of the Income Tax Act, 1961, allowing telecom operators to carry forward and set off business losses for up to 16 assessment years instead of the current eight years,” the COAI said.

Telcos have also urged the government to exempt Service Tax on the additional AGR liability arising from the Supreme Court judgement. “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,” the COAI said.

The body has also alternatively 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.

Telecom operators now pay GST under RCM on payments made to DoT for licence fees, spectrum usage charges, and spectrum acquired in auctions. This payment, combined with subsequent Input Tax Credit (ITC) utilisation, has led to a substantial accumulation of ITC within telecom companies.

“As a result, there is a significant blockage of working capital, imposing a heavy financial burden on these companies... Telecom operators urge 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,” the COAI said.

The COAI has alternatively proposed allowing the payment of RCM on government services through the utilisation of the ITC balance available in the Electronic Credit Ledger.

On exemption of customs duty, the COAI has requested exemptions on customs duty for certain telecom equipment to alleviate the cost challenges associated with deploying this critical infrastructure. Until high-quality equipment is available domestically at competitive prices, the body requested to reduce customs duties for 4G and 5G network products, as well as other related items, to nil.

Telcos have also sought custom duty exemption for cable repair and installation operations for submarine cable systems.

The current customs duty exemption for vessels engaged in laying submarine cables in India is set to expire on September 30. The telcos said the government must intervene urgently to extend this exemption to prevent an increase in cable-laying costs. Such an increase could adversely affect the future deployment of submarine cables, potentially compromising the quality of service.

“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,” Kochhar said.

The telecom industry is hopeful that the GST Council will consider these recommendations, as they are essential for enhancing the ease of doing business and restoring the financial health of this vital sector, he added.