Update: Download a copy of the notification here.

July 9th 2012: The Internet Service Providers Association of India (ISPAI) has approached the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), challenging the Indian Government’s decision to levy a 4% license fee on ISPs’ gross annual revenues, starting 1st July 2012.  The government had earlier announced that it plans to increase the fee to 8% by April 2013, in two yearly steps. At present, no license fee is charged from ISPs.

In a media statement, the ISPAI has pointed out the following issues:

– Cascading Effect: The fee will have a cascading impact and will lead to a 25% to 60% increase in cost, depending on the ISP.

– Telco Revenue Share Issues: The government was penalizing the ISPs due to its own failure to audit telecom operators’ differential revenue share payable by them against their multiple licenses, leading to the alleged underreporting of revenue.

– Against NTP 2012: It said that the move was against the main objective and spirit of National Telecom Policy 2012 which mentions “affordable and on demand Internet/Broadband connection to citizens of India”  and that it will remove competition by killing 90% of ISPs serving to niche smaller town and rural areas, making it a service for the privileged.

– Make Tariff Unafforable: The association stressed that the main thrust of the government was for Rural Broadband penetration, and Rural masses find the present tariffs non affordable. So the new levies would further harm the prospect of rural internet penetration.

– Penalising ISPs versus Telcos: the new fee was a penalty for the ISP segment (whose revenue is at Rs 7500 Crores as per TRAI) while it’s more of a reward to Other operators by leaving IP 1 sector (revenue at Rs 25000 crores as per TRAI) without imposing any levies, while TRAI advised levies to both sectors for level playing field and in NTP recommendation.

DoT’s note on levying a license fee on ISPs: According to a recent report by Livemint, which claims to have access to an internal DoT note, the government plans to levy a license fee equal to 4% of the ISP’s AGR (adjusted gross revenue) for the period between 1 July 2012, and 31 March 2013, which is a change from the present scenario where ISPs don’t pay a license fee.

ISPs with VoIP: The government also intends to levy a license fee equivalent to 7% of AGR on ISPs that offer Internet Telephony. Such ISPs pay a license fee of 6%, at the moment, and the plan is to charge 8% of AGR as license fee from both starting April 2012. As per the report, the  AGR will include all revenue from Internet services excluding revenues that don’t accrue to the company, like pass-through charges that go to another company, and taxes.

This is a departure from the TRAI’s recommendations on ISP license fee in 2007, that recommended an entry license fee of Rs. 20 lakhs for category A ISPs, and Rs. 10 lakhs for Category B ISPs.

Our Take (Nikhil adds)

If you look at the bigger picture, some entities like Reliance Industries, which got spectrum during the BWA auctions, have an ISP license, and hence are taxed differently from telecom operators who also offer ISP services. There is also a difference between the fee that telcos are charged, and ISPs offering VoIP are charged. This approach towards trying to bring in uniform license fees is a move to bring parity between two converging segments. It’s another thing that ISPs are smaller and given the issues they face with right of way, cannot afford to pay 8% of AGR as license fees, but with cost of right of way access doesn’t impact wireless ISPs.