Indian mobile user has a reason to smile: GSMA telecom tax study

Indian mobile users can continue to cheer as India does not
feature in the top 20 countries with the highest taxes on total cost of mobile
ownership, according to a GSMA survey.

In the past several years, Indian telecom industry
associations including COAI and
AUSPI had urged central government to reduce taxes to become more viable to run
the telecom business in the country.

According to GSMA  which tracked countries based
on Tax as a proportion of TCMO 2011, Turkey has ranked on the top. Turkey has
48.23 percent tax as a proportion of TCMO 2011.

The other countries in the top 20 list include: Gabonese
Republic – 37.20 percent, Pakistan – 31.61 percent, Greece – 30.44 percent,
Dem. Rep. of Congo – 29.14 percent, Madagascar – 28.33 percent, Uganda – 28.17
percent, Croatia – 27.93 percent, Tanzania – 27.80 percent, Dominican Republic –
27.68 percent, Zambia – 26.23 percent, Brazil – 25.15 percent, Sweden – 25
percent, Norway – 25 percent, Denmark – 25 percent, Hungary – 25 percent,
Rwanda – 24.47 percent, Italy – 24.38 percent, Sierra Leone – 23.82 percent,
and Jordan – 23.40 percent.

In the top 20 list, only one Asian country — Pakistan was
featured. Several African countries are not in the top 20 list. Pakistan ranks
third with tax as a proportion of TCMO of 32 percent, due to high fixed and
variable taxes on mobile ownership and usage. Of the ten countries with the
highest tax as a proportion of TCMO, five are African nations, according to a
press release from

Tax reforms have been a major issue for the telecom industry
in India which boasts more than 600 million mobile users.

These apprehensions were raised despite several measures implemented
in the Budget in 2011. The Budget 2011 had adopted the following measures:

1) Full exemption of the countervailing duty (CVD) of 4
percent on accessories, parts and components imported for the manufacture of mobile
phones has been extended for the full year.

Increase in the rate of Minimum Alternate Tax (MAT) from 18
to 18.5 percent of book profits.

Surcharge on domestic companies reduced to 5 from 7.5

Operators were looking for the following:

– Clarity on the tax treatment for the 3G spectrum fee
outflow: Operators want this to be classified as an intangible asset and that
the interest cost on the loans taken on them can be capitalized up to the date
of commencement of services.

– Extension of tax holiday for operators who have launched
their services after March 2005.

– Tax holiday benefits in case of M&A deals to be
continued in order to aid consolidation in the sector that is suffering from
hyper competition.

– Telecom to be given the status of infrastructure.

Several industry captains were looking for tax reforms in
India.  They were demanding reducing
tax burden as there is no clarity as regards the treatment to be adopted for
corporate tax purposes in respect of massive upfront spectrum fee payment, interest
costs on account of borrowed capital and deductibility/ taxability of foreign
exchange fluctuations in respect of overseas borrowings. The Government should
therefore, bring out specific amendments in the Income tax law, so as to
provide for depreciation claim on the upfront spectrum fee payment, allow
deduction of interest paid on capital borrowed for acquisition of spectrum
under Section 36(1)(iii) of the I-T Act and provide clarity on deductibility/
taxability of foreign exchange fluctuations in respect of overseas borrowings.
The above will provide certainty on the treatment of such expenditure and
minimise litigation.

Soon after the Budget, COAI stated  while
at a macro level the Budget seems to be growth oriented, however the concerns
of the telecom sector with regard to the high tax burden still stay

The telecom industry is growing rapidly amidst concerns
about profitability of the industry. It is time for the government to look at
improving the viability of doing telecom business in India. At the same time,
the GSMA report brings excitement to the mobile users in India.

The GSMA study found that Asian consumers generally pay the
lowest tax as a proportion of mobile service ownership, due to relatively low
VAT rates and limited mobile-specific taxation.

By Baburajan K

[email protected]