Telcos seek tax relief on interconnect

Telecom operators have jointly approached the government seeking exemption from paying service tax and Tax Deducted at Source (TDS) on Interconnect User Charges (IUC).

"Interconnect charges paid are not in the nature of fees for technical service, but are levied for allowing a call to be carried from one service provider to another service provider. Thus service tax should not be applicable on IUC paid by the companies and necessary clarification must be issued in this matter," cellular operators said in a letter to the department of telecommunications.

This step was taken as operators were receiving demands from the service tax department towards charging service tax on IUC, they said.

Cellular operators said exemption of service tax for IUC would obviate "unnecessary complicated procedures and administrative problems to claim tax credit", and added that there would not be loss of revenue to the government since the payment of service tax amount would be set off against the output service tax liability.

Operators said TDS should not be applicable on IUC and demanded that the government issue necessary clarifications on the matter. "The intent of TDS is to widen the tax base "� however, telecom service providers are already pay very high taxes," operators said.

"Moreover, it is difficult to monitor the tax deducted and claim tax credit against heavy load of TDS certificates received for this amount," the letter said.

Cellular operators have also asked the government to do away with the requirement of depositing service tax charged on the foreign vendor as the same was taken as a credit against their service tax liability. This simplification would not have any impact on the revenue as it was only a procedural simplification, the letter said.

"These are critical administrative issues which are resulting in undue problems and result in higher costs not only for the service provider but also for the government," cellular operators added.