Pre-budget expectations on telecom sector in India

Deloitte India has released pre-budget expectations on telecom sector in the country.
Teenage smartphone userInvestment incentives in the form of accelerated depreciation or investment allowance on capital investments will provide an impetus to foreign telecom gear manufacturing companies to set up manufacturing facilities, propel job creation and boost MSME’s in the sector.

Incentive plans and relaxation from tax/regulatory fee for few years on 5G acquisition to ease the stress of financial outlay in post 5G scenario.

Revisit spectrum charges and other levies faced by the telecom companies and potentially offer one-time amnesty schemes for past dues

Provide reprieve from certain retrospective amendments introduced by Finance Act 2012. For example, royalty definitions do not apply to payments against telecommunication connectivity services including Interconnection Usage Charges (IUC). Government should clarify that payments for telecom bandwidth are pure service arrangements. This will go a long way to reduce litigation and more importantly relieve the domestic loss making telcos from the stress of cash blockage owing to tax withholding.

Airtime sold by telecos through distributors is on a principal-to-principal basis and has been a matter of extensive litigation. Special provisions may be introduced to tax the profits earned by such distributors. Further, to improve the tax base and collections in tax, such revenues may be subject to tax deduction @ 1 percent at source. It is not difficult to calculate the expected increased cash in tax flows for the government

For companies unable to claim MAT credit due to lapse of 15 year time window, amendments should be made in the law by removing the cap on time period within which MAT credit set off can be claimed. Most telcos paid MAT on their book profits for the years when they were eligible for tax holidays. Given that some of the telcos are currently incurring losses, removal of this cap of 15 years should increase the likelihood of telecom operators being able to utilize MAT paid during tax holiday periods

Reduction in Basic Customs Duty on telecommunication equipment from 20 percent to 10 percent and address input credit loss by bringing petroleum products under GST ambit. Further, disallowance of input credit on telecom towers under the GST law adds to the financial stress on the sector. Despite telecom towers accounting for a major part of the input cost, input credit on the same is expressly denied under Sec. 17 of the CGST Act, which has adversely hit the sector. Input credit on telecom towers should be eligible and restriction on credit under Section 17 of CGST Act should be removed so that the GST component does not add to the telcos cost base.