Telecom Budget 2024: Industry seeks USOF and tax reliefs, duty exemptions

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India’s private telecom operators want the Ministry of Finance to suspend the Universal Service Obligation Fund (USOF) till the existing corpus is exhausted. They also sought an exemption from the service tax on the “assignment of the right to use natural resources” and the slashing of customs duty on telecom equipment to zero to drive the 5G rollout.

Finance Minister, Nirmala Sitharaman, is set to present the interim budget on February 1, serving as a vote-on-account ahead of the upcoming general elections in April-May 2024.

In the Budget recommendations, the Cellular Operators Association of India (COAI) has also recommended reducing the license fee from 3% to 1% at the earliest to cover only administrative costs by the Department of Telecommunications (DoT).

The Cellular Operators Association of India (COAI), which represents private-sector telecom operators Reliance Jio, Bharti Airtel, and Vodafone Idea, has also urged the government for an exemption from GST under the Reverse Charge Mechanism (RCM) on payments made to the Department of Telecommunication (DoT) towards License Fees, Spectrum Usage Charges and Payment of Spectrum acquired in the auction.

Telcos said that payment of GST in cash on a reverse charge basis and subsequent Input Tax Credit (ITC) utilisation has resulted in a substantial accumulation of ITC within telecom companies, leading to a significant blockage of working capital and, thereby, a substantial financial burden on them.

"The recent forward-looking reforms signal a positive intent towards a robust and future-ready telecom sector, capable of fueling India's digital ambitions. But to fully realize this potential, we must address the financial constraints impeding the sector’s expansion. Reducing levy burdens is not just an economic necessity, but a strategic investment in our digital future,” said S.P. Kochhar, Director General, COAI.

Kochhar said that by allocating adequate resources for 5G rollout, network expansion and fiberization in the upcoming budget, the government can unlock this critical sector's full potential and propel us towards a digitally empowered nation.

On the customs duty on telecom equipment, COAI said that India, throughout 5 to 6 years, has increased the customs duty on telecom equipment to 20%, which has put an additional financial burden on telecom companies and has impacted the rollout of 5G services in India.

The industry has requested that the customs duty be reduced to zero and gradually increased depending on creating an ecosystem for manufacturing telecom gear in India.

The present definition of Gross Revenue (GR) includes revenue from all telecom activities. The term telecom activity is not defined but may include revenue from activities considered incidental to telecom activity. “Therefore, the definition of GR should make it abundantly clear that the revenue from activities for which no license is required should not be a part of GR,” the body said.

The COAI has also requested to introduce 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 eight years.

The body has also requested that the levy of Service Tax on the “assignment of the right to use natural resources” granted by the Central Government/ State Government and Development Authorities be exempted.

The judgment of the Supreme Court regarding the methodology for the calculation of AGR payable to the Government has created an additional liability for the telecom service providers, COAI said.

“Before the introduction of GST, Service Tax was paid on payment of AGR and Credit of the same was also made available. However, after the introduction of GST, additional payment of AGR on account of SC judgment with service tax will make the service tax amount a cost for telecom companies as no credit will be admissible to them,” COAI said, adding that the government must exempt payment of service tax on the additional liability of AGR.

The body has also urged the government to extend the customs duty exemption granted to vessels laying submarine cables in India. The exemption is set to expire on March 31, 2024.

Telecom companies heavily depend on submarine cables for the high-speed transfer of data around the globe.