The Budget intends to impose a 15 percent service tax on spectrum allotment by the government (principally via auctions) and spectrum transactions between licensees (transacted via sharing and trading).
Indian telecom network operators such as Bharti Airtel, Idea Cellular, Vodafone, etc. have a huge debt of INR 3,50,000 crore.
On top of this, India’s spectrum prices are 130 percent of global norms.
The proposed levy of service tax on spectrum, estimated at Rs 30,000 crore per year will bring new burden to Indian telecom industry.
“Any telecom operator working below an EBITDA of 20 percent will find it extremely difficult to setoff this additional tax cost and will end up with cash blockages and / or bear this as an additional cost,” said COAI director general Rajan Mathews.
The spectrum cost is going to impact the health of the telecom industry and will affect the investible corpus of the telecom operators, leading to challenges in rolling out new technology, networks such as 3G and 4G.
The imposition of the service tax will increase the cost of spectrum acquisition in the upcoming auctions by 47 to 71 percent, putting a dampener on auction results.