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Cellular Operators Association of India pushes for tax relief ahead of budget

The Cellular Operators Association of India has asked for tax relief head of the Union Budget 2018, asking for three specific recommendations:

1. Right of Way access shouldn’t be taxed: This is an odd one. The COAI says that even though the Right of Way rules have brought in standardisation or processes and fixing of charges, the fixed tariff they pay to municipal bodies for permission to set up towers and lay optical fibre shouldn’t be subject to tax. The income of state government cannot be subject to union taxes. However, it seems that there are Central Government investigations against such agencies to recover such taxes, “which are making these agencies pressurize Telecom companies into paying the due tax with interest and penalty.”

The COAI has recommended that “the Government clarify that provisions of RoW are in relation to discharge of functions specified in XI/XII Schedule of the Constitution, and hence covered under the relevant exemption in favour of government departments and hence there is no liability of service tax/ Goods & Services Tax (GST) on such transactions.”

2. Tax Withholding on distributor margin on SIM cards and prepaid vouchers: The government is treating distributors of prepaid vouchers and SIM cards as commission agents of telecom companies, and treating the discount (in bulk sales) as commission, and is thus subjecting telecom companies to withholding tax. The matter is pending before the Supreme Court, but the COAI says that “in order to bring the ongoing litigation to an end, given the low margins earned by the distributors, a lower withholding tax rate of 1% may be prescribed for telecom distributors.”

3. Customs duty Exemption for LTE Equipment required for 4G network and telecom devices: The government has withdrawn customs duty exemptions given to 2G and 4G network equipment, in an attempt to try and encourage local telecom equipment manufacturing. The COAI says that the scale and quality of equipment needed by the sector is not yet available in India, and the telecom companies have to pay a higher price to import the equipment. In its submission, the COAI has said that until “quality products at a competitive price are available in the country, at the scale that they are needed; the government needs to rethink its stand regarding customs duty on equipment, to ensure timely roll-out of networks.”

4. Reduction in GST rate: The COAI has once again asked for a reduction in the GST applicable to the telecom sector. The Telecom Industry is subject to a GST of 18% and has a number of cess’ on top of that, which makes telecom services less accessible. The DoT is in favor of reducing GST to 12%.

MediaNama’s take

Given the competition in the telecom sector following the entry of Reliance Jio, we’ve seen a dramatic increase in growth of Mobile Internet usage, along with a reduction in telecom operator profitability. The sustainability of the telecom sector is important, and it’s essential that the regulatory burden on telecom services be reduced, and it be treated as a provider of utility services: this means a reduction in taxes, lowering of license fees and spectrum costs. All these costs get transferred to the consumer. While it is true that there are industries that haven’t transferred GST related benefits to customers, and that lowering of regulatory burden on telecom operators might not necessarily lead to a reduction in access costs for customers, we need more (fair) competition in the telecom sector to help with that.

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    © 2008-2018 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ