Plan to Impose Service Tax will Push Up Tariffs: Telcos
Levy will cost the industry .₹ 30k-cr & hit cos’ expansion plans, they said 47-71%, 3,50,000
New Delhi: Telecom companies have warned that the finance ministry’s proposal to impose a 15% service tax on all spectrum allotments, including auctions and trading deals, will cost the industry .₹ 30,000 crore in the first year, that could force carriers to raise tariffs. The move will not only make the cost of acquiring spectrum higher by 47-71%, dampening the bidding interest in the upcoming auctions, it will also cut into the telcos’ corpus required to expand services like 3G and 4G, telcos have said in a letter to Finance Minister Arun Jaitley on Monday.
“The proposed levy of service taxes on spectrum, estimated at .₹ 30,000 crore (in one year itself), industry wide, will service tax will not only make cost of acquiring spectrum higher by
it will also cut into telcos’ corpus required to expand services like 3G & 4G
further push the industry teetering to the edge of financial distress,” Cellular Operators Association of India (COAI) said, representing concerns of the industry which was already reeling under .₹ 3,50,000 crore of debt.
COAI represents top telcos such as Bharti Airtel, Vodafone India and Idea Cellular, besides newcomer Reliance Jio Infocomm.
“It is evident that this incremental tax cannot be absorbed,” the lobby group added, seeking a meeting with Jaitley to present their case of limiting the proposed service tax to
impact ability of telcos to participate in upcoming auctions, while equally impacting govt’s Digital India programme
is already reeling under
spectrum trading deals. It said some smaller players could even face survival challenges.
Levying 15% as service tax would impact ability of telcos to participate in the upcoming auctions, while equally impacting the government’s Digital India programme and its attempt to increase rural penetration of data services.
“This will materially affect and dent ability of operators to bid in future auctions, while impacting some from a survival perspective itself,” the lobby group emphasised.
In his Budget speech on February 29, Jaitley proposed to declare the assignment by the government of the right to use radio-frequency spectrum and its subsequent transfers as a service — and not a sale of intangible goods — on which service tax can be levied. COAI said all government services have been made liable to service tax to be paid by recipients with effect from April 1.
The proposal is “unintentionally punitive and is evidently resulting in material distortion and discrimination to the industry,” COAI said.
The government also proposed that the Cenvat credit of the tax imposed on such assignment be deferred over the duration of the license period.
COAI said that credit on spectrum trading deals should not be deferred, since that would be a further double whammy for the industry.
Arguing that imposing the tax on spectrum assignment, which was a sovereign function, COAI said that the government would be creating a tax cascading impact which will adversely affect operators working on thinning margins and EBIDTA of 20%.