Spectrum is a tax riddle, says PwC

The government should clarify taxation rules regarding payments made for acquiring spectrum while working to resolve the issue of 3G spectrum allocation, according to financial consultancy firm PricewaterhouseCoopers (PwC).

"There is no specific provision in Indian tax laws governing the deductibility of the payments made for acquiring spectrum," a PwC report on the telecom sector said.

With the allocation of spectrum, especially 3G being an issue of concern, rules governing the same in the taxation laws also assume significance.

"Since, substantial amounts are to be involved for acquiring spectrum, determining its deductibility becomes critical," the firm said.

An issue which follows the dearth of tax laws in case of spectrum is whether such payment is in the nature of capital expenditure or revenue expenditure, the firm pointed out.

"If such expenditure is capital in nature, whether it is eligible for depreciation? If such expenditure is revenue in nature, whether the deduction thereof is allowable in the year of payment or over the period for which the spectrum is allotted," PwC said.

As per certain media reports, the finance ministry has decided to allow the telecom operators to treat the bid amount for acquiring 3G spectrum as an expense over the tenure of the licence that is 20 years.

Telecom is currently the fastest growing market in the world on account of monthly addition of 10-12 million mobile subscribers who sign up primarily due to availability of low tariffs and low-cost handsets.

Companies looking to invest in the Indian telecom market need to consider a number of tax issues. Overall tax rates can be quite high, so careful tax planning is vital, the report said.