COAI Cheers Budget 2016 Highlights
Spectrum Trading service tax allows telecom companies to claim CENVAT credit. The opening of 11 new Customs, Excise and Service Tax Appellate Tribunal (CESTAT) benches is a welcome initiative to resolve over 1.3 lakh tax dispute cases pending in various courts. Further, the decision to abolish 13 different cesses under different ministries is a positive step, although the proposed Krishi Kalyan cess of 0.5 percent levied on all taxable services with effect from June 1 (after enactment of the Finance Bill, 2016) could impact the prepaid business of the operators. Enabling provisions for availment of CENVAT credit of the said cess are also yet to be introduced.
Exemption from Basic Customs duty has also been withdrawn on specified telecommunication equipment [such as soft switches and Voice over Internet Protocol (VoIP) equipment namely VoIP phones, media gateways, gateway controllers and session border controllers, Optical Transport equipment; etc.].
Assignment by Government of the right to use the radio-frequency spectrum as well as subsequent transfers of assignment of such right to use would now be construed as ‘service’ and liable to Service tax. Such liability will not only increase cost of service but will also result is huge cash flow issue for the operators.
It has also been proposed that CENVAT credit of Service tax paid on amount charged for assignment by Government or any other person of a natural resource (such as radio-frequency spectrum, mines etc.) shall be spread over the period of time for which the rights have been assigned. Deferring utilization of
POEMPOE to be applicable from 1 April 2016 (AY 2017-18):20
Mechanism to comply with the provis visions of the Act (i.e. computation of income, tre treatment of unabsorbed depreciation, set off and carry forward of losses etc.) for the foreign co companies who becomes resident of India by vir virtue of POEM shall be prescribed. This is a re relief for India-based telecom companies with glo global operations. PA PAN not required for foreign companies: Provisions of section 206AA of the Act shall not apply to non-resident companies with effect from 1 June 2016, subject to the conditionscond to be prescribed. This may bring much needed relief to the Indian telecom operators while dealing with the non-resident telecom companies not having PAN in India. Spectrum payments should now be amortized over the period for which the spectrum remains in force. However, this provision has a prospective effect. So ambiguity remains on the fate of those spectrum payments which have been capitalized in the books of telecom companies as intangible assets depreciable over 4-5 years.
Amortization of spectrum fees under section 35ABA: Lower tax rate for domestic companies engaged in manufacturing:
Option of availing lower rate of income tax of 25 percent by newly set up domestic companies engaged in manufacturing has been provided. These companies have to forego incentives (accelerated depreciation, investment allowance, expenditure of scientific research etc). This option shall provide some relief to the telecom hardware industry.
Lower rate of taxation for income from Patents:
In order to increase indigenous research and development, a lower rate of taxation at the rate of 10 percent is prescribed for taxation of royalty income arising on account of patents developed and registered in India.
Alternate Dispute Resolution:
High Level Committee chaired by Revenue Secretary and member CBDT will oversee fresh cases where assessing officer applies the retrospective amendment — specifically relating to indirect transfers. This is a one-time scheme of Dispute Resolution for ongoing cases under retrospective amendment provided the tax payer foregoes its right to appeal on the disputed matter.