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Like every other year and every other sector, all eyes are glued to the unveiling of Union Budget 2012-13. The telecom industry too has a long wishlist from this budget. Associations are voicing their expectations on behalf of the industry and demanding concrete provisions this time from the budget.

Telecom services are recognized as prime support services for rapid growth and modernization of various sectors of the economy. Indian telecom sector has undergone a major transformation through significant policy reforms and has achieved a phenomenal growth.

The budget should spur the growth of the telecom industry, by nursing issues that have been neglected for years together. What is needed is a strong regulatory foothold on certain issues, which have been unattended or partially attended by the government for years together, due to which we are finding the industry in splits. VOICE&DATA has outlined certain key issues faced by the telecom sector and relevant recommendations that hopefully should find prominence in the Union Budget 2012.

Call for Infrastructure Status

Currently, 'telecom' does not fall within the purview of the definition of infrastructure projects. Over and above the concerns on high tax structure in the Indian telecom industry, telecom infrastructure companies are not able to get long-term benefits from associations like India Infrastructure Fund at the moment as they are not categorized as an infrastructure. By getting classified as an infrastructure, benefits pertaining to it can be availed. In that case, telecom infrastructure companies will be treated as utility companies and thus easily get finance. It's also necessary, because infrastructure companies have a long break-even period by the way of sharing. So, there is an asset liability mismatch. To provide these facilities, infrastructure status is a must and thereby extending the benefit of Section 80-IA of income tax as also for the applicability of CENVAT for IP1 Infra Service Providers.

Infrastructure Development: Key to Economic Growth

Especially, Section 80-IA which is regarding providing incentives to the infrastructure companies as infrastructure projects involve large capital investments and have long gestation periods.

Umang Das, director general, TAIPA adds, “This status may also help to address ambiguities prevailing in the property tax terminologies for telecom towers: Sometimes they are taxed as an infrastructure property, sometimes as telecom towers, and in other cases as buildings.”

The Hon'ble President of India, in her address to the first session of both Houses of Parliament after the elections to the 15th Lok Sabha on June 4, 2009, had emphasized on the need to infuse massive resources into infrastructure development so as to enable economic growth. “Government should appropriately amend the definition of 'infrastructure' to cover 'telecom' also,” says RS Mathews, director general, COAI.

Re-modeling the Tax Structure

Taxes play a pivotal role in the growth of any sector. The telecom sector is paying multiple charges in the form of taxes and duties such as service tax, customs duty, excise duty, Value Added Tax (VAT), Central Sales Tax (CST), entry tax, license fees, spectrum charges, etc. For further accelerating growth of this sector and to ensure an affordable tariff to consumers, there is a need to re-examine these multiple taxes and levies applicable on the telecom sector. Estimatedly, multiple taxes and levies account for as high as approximately 30% of telecom service revenues as compared to just 5% for other Asian economies.

Appropriate amendment in law is requested: To exempt from service tax the earnings of distributors from distribution of telecom services, as telecom operators are paying service tax on entire consideration; also to avoid litigation for distributors and consequential hardship.

“Lowering of levies can be a critical tool in the hands of policy makers to improve tele-density and expand service,” insists Mathews.

Ashok Aggarwal, director general, TEMA agrees and says, “Re-modeling of tax structure so as to dispense with the financial disadvantage is expected of the government on an urgent basis. There should be deferment of excise and VAT for a minimum period of 5 years for all Indian product companies and preferential market access should be mandated for the Indian products.”

Point of Taxation Rules, 2011 require payment of service tax on accrual basis: Service tax is payable by the service provider on an issue of invoice, irrespective of the receipt of payment. Service recipient accordingly is now allowed to avail credit on a receipt of invoice regardless of payment thereof by amending CENVAT credit rules. Service recipient is obliged to reverse the credit availed, if the payment of corresponding invoice is not received within a period of 90 days. However no such facility is available to a service provider to adjust the service tax paid if payment of corresponding invoice is not received within 90 days. Effectively, even for bad debts, service providers end up paying service tax from their own pocket.

“Amending service tax rules to allow adjustment of service tax paid equivalent to the amount attributable to services against which payment remain unrealized (for a specific period of time say 90 days) should be immediately be done by the government. Such deduction should be allowed without any condition (eg, monitory limit, etc),” explains SC Khanna, secretary general, AUSPI.

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