Service tax levy on spectrum to increase tariff rates: COAI

Proposal to declare spectrum allocation as service tax will result in tax burden of Rs 77,000 crore and will take a toll on users' tariff, the telecom body said

Industry body COAI today said the proposal in Finance Bill 2016 to declare spectrum allocations as services will result in a tax burden of Rs 77,000 crore for operators and is likely to hurt consumers as they have to pay higher tariff rates if the load passed on to them.

The Cellular Operators Association of India (COAI) further said this will also have an adverse impact on the government's 'Digital India' initiative and financial inclusion plan.

"The service tax levy on spectrum assignment means that during auctions lined up for June-July, where reserve price is around Rs 5.36 lakh crore, the industry will have to cough up minimum Rs 77,000 crore as a service tax. This is a substantial financial burden on the industry which is reeling under debt," the COAI said in a statement.

Read more from our special coverage on "TELECOM"

• Upcoming auctions could give more pain to telecom companies
• Govt budgets in Rs 21,000 cr from telcos as arrears

The Finance Bill 2016 has proposed that assignment of spectrum and subsequent transfer thereof to be declared as a services under Section 66E of the Finance Act, 1994.

It has said that all government services have been made liable to service tax and to be paid by the recipient on a reverse charge basis with effect from April 1, 2016.

"If the costs were to be passed on to the end consumer, it would not only result in a significant increase in the cost of telephone services, but also have an adverse impact on the Digital India initiative, as well as, the financial inclusion plan of the government," the COAI said.

Further, the government has proposed that the Cenvat Credit of the tax so imposed on such assignment is proposed to be deferred over the life of the licence period.

The COAI said deferral of credits will mean that the industry will be burdened by a minimum effective cost of Rs 40,000-50,000 crore.

"It is worth noting that what is meant to be a 'zero cost' in the cenvat credit system for any operator who has adequate output service tax, will convert up to a 71 per cent cost of the tax imposed. The cost on account of deferral of credit would severely impact the health of the telecom industry," the industry body said.

Credits of service tax imposed in respect of received services are available immediately on receipt of invoice or payments for services. Even in case of capital goods, benefit of credit is available within an average period of six months, over two financial years, the COAI said.