Garima Pande
The Union Budget 2015 aims at growth of the economy and to raise the country’s profile as an investment destination. Though the tax proposals announced by the Finance Minister are expected to have a positive impact for the taxpayers in general, the Indian telecom Industry, which has played a pivotal role in the growth of the economy during the last two decades, could well be disappointed with the announcements.
The Budget has clearly failed to address some of the key concerns of the Industry players with a couple of them being rationalisation of the amended royalty provisions (amended by Finance Act, 2012) to provide for exclusion of standard telecom services, including clarification to reiterate supremacy of the tax treaty provisions by providing that such amendments should not be read into the tax treaties; and providing relief to the Industry players from the litigation faced by the telecom operators on account of allegations of Indian revenue that the independent distributors appointed for distribution of pre-paid products are agents of telecom operators and thus, margin paid to them qualifies as ‘commission’ subject to tax withholding at the rate of 10%.
On the indirect tax side as well, requests for allowing CENVAT credit of Special Additionally Duty (‘SAD) paid on imports of capital goods and inputs; abatement for Value Added Services (‘VAS’) to mitigate burden of dual levy of service tax and entertainment tax; accelerated deduction at the time of reversal of CENVAT credit on removal of used capital goods; etc. have not been considered.
Besides, no incentives have been offered to the incentive starved Industry, which would have gone a long way in attracting further investments and contributing further to the growth of the economy and the ‘Digital India’ campaign of the Government.
Having said that, reduction of the tax rate on royalty and technical services payments made to non-resident parties to 10% (from the existing 25%) is expected to ease the financial burden for the Industry which, in this technologically advanced era, is heavily dependent on foreign technology and services with generally the contracts requiring Indian players to bear the withholding tax cost.
Similarly, amendments in the indirect transfer tax provisions; proposal to reduce corporate income-tax rate to 25% over a 4 year period in a phased manner; deferral of General Anti Avoidance Rules (‘GAAR’) for another 2 years; grandfathering of investments made upto March 31, 2017 under GAAR provisions; implementation of Goods and Service Tax (‘GST’) from April 1, 2016; exemption from SAD on raw materials used in the manufacture ITA products; etc., are some welcome steps that should enure incidental benefits to the Industry.
At the same time, stipulating compulsory reporting requirements (hitherto applicable to the remittances reported as taxable by the remitter) for every overseas remittance would increase the procedural compliances, administrative inconvenience and costs for the Industry players. Similarly, on the indirect tax side, increase in the excise duty on mobile handsets (including cellphones –without Cenvat Credit) from existing 6% to 12.5% and increase in the service tax rate to 16% may not go down well with the Industry players.
In summary, given the seemingly high pre-budget expectations of the Industry players riding on the ‘Achey Din’ promise of the Modi Government, the present Budget may end-up having a negative impact on the telecom Industry on account of its failure to meet the key demands/ expectations.
Author is, Tax Partner, EY IndiaThe views expressed in this article are personal to the author
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