Budget wishlist: Telecom sector

KEY DEVELOPMENTS

• Termination charges: The Telecom Regulatory Authority of India (Trai) came out with regulations reducing termination rates for the sector by 20 paise a minute to 14 paise a minute, effective from March 1, 2015. Fixed-line termination charges was reduced to nil.
   
• Digital India: The government's significant push to 'Digital India' will benefit the telecom sector. The government plans to roll out free high-speed Wi-Fi in 2,500 cities and towns across India over the next three years.
   
• Spectrum trading: Issuance of guidelines for spectrum trading will allow telecom firms to buy and sell rights to unused spectrum among themselves, to improve spectral efficiency and quality of service.
  
   
• Make in India: The campaign appears to have had a positive effect on mobile handset makers, with big ones showing interest in making and assembling handsets in the country.

KEY ISSUES

• Taxes & fees: High tax incidence and multiple tax levies on the sector in the form of spectrum fees, license fees, service tax, VAT, etc.
   
• Infra incentives for tower firms: Need to allow higher limit of funds through the ECB route and tax holidays and low-cost loans for tower firms.
   
• Lack of clarity on tax issues and prolonged litigation involving huge cash flows for firms are affecting daily operations. Also, clarity needs to be provided on the withholding tax obligation on payment for spectrum trading.
   
• Cess: With introduction of a Swachh Bharat cess of 0.5%, the service tax rate has risen to 14.5% from Nov 15, 2015. Such a cess is not creditable and becomes a cost to the service provider.

EXPERT VIEW : Sandeep Chaufla

PwC expert answers Business Standard readers' questions on what to expect from the Budget

AHMED: Incentivising is happening for start-ups using telecom as a platform. What about new ideas for developing telecom infra? In what way can the govt incentivise new ideas that will facilitate better services, equipment and better reach at lower costs, to the areas still out of the reach of telecom majors?

The government has adopted a much focused approach to promoting and incentivising new ideas. It recently introduced the 'StartUp India' scheme, which has proposed various incentives, including three years of tax and compliance breaks, cheaper and faster patent applications, a capital gains waiver if the money is reinvested in a similar venture, as well as easier exit for failed projects. To promote new ideas developing telecom as a platform, the govt may do the following:

> Provide that expenses in developing an idea are allowed to be amortised on a deferral basis for tax purposes

> Reduce or remove certain regulatory levies on telecom firms operating in rural areas

> Make spectrum available for rural wireless deployments at reasonable costs

> incentivise infra sharing in rural areas to reduce cost.

RAJIV: What are the telecom industry's hopes from the Budget on Customs duty front?

One issue for the telecom service providers on the Customs duty front is non-creditability of special additional duty paid at the time of import for service providers. Such a duty paid on import of telecom equipment becomes a cost for the service provider. Currently, the duty is creditable to manufacturers and refundable for traders. So, only the service sector bears the cost of the duty paid. The industry expects it be removed or credit for it be allowed to service providers.

Additionally, for telecom infra, as well as handset firms, the key issue for customs remains removal of concessional rate of duty on various goods (this has been restricted to only manufacturers vide recent changes to boost 'Make in India'). The industry is strongly representing before the government to allow such benefits on imports as well. The wish list for the Budget includes extension of such benefits /concessions to imports.

Sandeep Chaufla
Partner (Direct Tax), PwC

"The govt has permitted spectrum trading among telcos. But there is some uncertainty on the withholding tax obligation under Section 194J of the I-T Act on payments made for the spectrum acquired. A clarification may be issued that payments in connection with spectrum trading/sharing are not in the nature of royalty and so they do not attract withholding tax. Also, Swachh Bharat Cess should not be levied on telecom industry"

Rajan Mathews
Director-General, COAI