Telecom operators seek tax reforms, duty relief in 5G equipment

telecom

As the Union Budget 2024-25 approaches, private telecom operators have urged the government to implement tax reforms to enhance the sector's financial health. They also advocate eliminating customs duties on telecom equipment for 4G and 5G networks to reduce the costs associated with deploying these essential infrastructures.

In their recommendations to the Ministry of Finance, telecom companies such as Reliance Jio, Bharti Airtel, and Vodafone Idea have highlighted the need to abolish regulatory levies like the Universal Service Obligation Fund (USOF) and Adjusted Gross Revenue (AGR). Additionally, they propose reducing the License Fee from 3 percent to 1 percent to alleviate the financial burden on the industry.

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The telcos have also suggested that the government suspend the 5 percent USO contribution from AGR until the current USO fund, which is approximately Rs 80,000 crore, is depleted.

"The telecom industry is crucial in providing affordable connectivity and inclusivity during this transition. Therefore, reducing the levy burden on service providers and facilitating investment opportunities is not just an economic necessity but a strategic investment in the country’s future," stated SP Kochhar, director-general of the Cellular Operators Association of India (COAI).

COAI said that the industry is concerned over the gross revenue (GR) definition, which presently 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.

"We recommend 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.

The COAI has recommended that the government establish a special provision under Section 72 of the Income Tax Act, 1961, permitting telecom operators to carry forward and offset business losses for up to 16 assessment years rather than the current eight years.

Telecom companies have also called on the government to exempt Service Tax from the Supreme Court's ruling on the additional AGR liability.

"Specifically, relief has been requested to exempt Service Tax payments for the period from April 2016 to June 2017, as well as on various services rendered in November 2018," the COAI mentioned.

The body also suggested that the government introduce a streamlined, time-bound process for claiming cash refunds of the Service Tax paid under the Reverse Charge Mechanism (RCM), which would significantly relieve the industry.

Regarding customs duty exemptions, the COAI has requested that certain telecom equipment be exempt from customs duties to mitigate the cost challenges associated with deploying critical infrastructure. Until high-quality equipment is available domestically at competitive prices, the association has asked to reduce customs duties for 4G and 5G network products and related items to zero.

Telecom companies have also sought customs duty exemptions for cable repair and installation operations for submarine cable systems.