Presentation on Taxes and Levies to
Department of Revenue
on 6.11.2006
by
Association of Unified Telecom Service Providers of India
1
Reduction in Revenue Share
License Fee – Why?
• There is a strong case for reduction of revenue share
license fee in consideration of :
 Unprecedented growth of telecom sector resulted in
exceeding target of NTP 99 much ahead of stipulated time.
 This growth has been facilitated due to reduction in license
fee after migration to revenue share regime.
• India has one the highest tax regimens in the world,
and levies must be reduced to bring them in line with
international best practices.
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Reduction in Revenue Share License Fee
Internationally, telecom services attract much lower levies than those
of India. (Refer Table 1).
Table-1
Pakistan
Sri Lanka
China
India
Regulatory charges
% age of revenue
%age
% age of revenue
% age of revenue
Service tax, GST
GST
VAT
3%
12.2% + GST
License Fee
0.5% + 0.5% R & D
0.3% turnover (t.o.) + 1% of
capital invested (inv)
Nil
5 – 10%
Spectrum Charge
Cost recovery
~1.1% to t..o
~0.5%* (China
Mobile)
2 ~ 6%**
USO
1.5%
Nil (only on ISD calls)
Nil
Incl in license fees
Total Regulatory
charges
2.5% +GST+ cost
recovery
1.3% t.o.+1% inv+VAT
0.5%+3% (Tax)
19%~28% + GST
* Backbone spectrum charges extra **Est. from Spectrum fees & revenue of China Mobile
•High percentage of revenue share to be brought down to 6% including levey for USO fund.
•High service tax of 12.2% to be brought down (already 1/3 of the total collection of service tax is
estimated to be from telecom services)
•With growth of 5 - 6 million subscribers per month, the additional revenues will in any event
compensate for reduced taxes and levies.
3
Reduction in Revenue Share
License Fee
• Reduction in revenue share license fee would not affect government
revenue as with increase of subscriber base, government revenue
also increases substantially. (Refer Table-2)
Table-2
Rs in Crores
ESTIMATE OF GOVT. LEVIES FROM LICENSE FEE, SPECTRUM FEE &SERVICE TAX ON ALL
TELECOM SERVICES
Year
Gross
Revenue
AGR
License fee
Service tax *
5-10%
Spectrum
Charge 2-4%
Total Govt.
Levies
2002-03
48000
40800
4080
2040
206
6326
2003-04
61000
51850
4770
4148
434
9353
2004-05
80000
68000
6256
6800
856
13912
2005-06
100000
85000
7820
8500
1530
17850
2006-07
139000
118150
10869.8
11815
2458
25142
2007-08
169000
143650
13215.8
14365
3275
30856
[Source: TRAI]
* Rate of service tax taken as 5% upto 13.5.2003, 8% upto 31.3.2005 and 10% thereafter.
4
Reduction in Revenue Share
License Fee
In line with recent government decision of reduction
in revenue share license fee for long distance
services, there should be uniform reduction in license
fee to 6% including USO levy for UASLs.
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Single Taxation for telecom
services sector
 Telecom service sector faces multiple taxes and levies some of which are one of
the highest in the world.
 Total levies including license fee, service tax, spectrum charge etc. on the
telecom sector are around 26% of the revenue.
 Customers pay at least 30% of the telecommunication bill directly or indirectly as
taxes and levies.
 Telecom tariffs in India are among the lowest in the world due to competition.
 With very low ARPU and rock-bottom tariffs, the present exponential growth of
subscribers is not sustainable unless drastic policy interventions are made.
 Convoluted tax structure needs to be addressed to make the sector investorfriendly, industry friendly as opined by Hon’ble FM in the 77th FICCI AGM in
December, 2004.
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Reduction in annual spectrum usage
charges

Telecom subscribers pay about 30-35% of their bill as taxes and levies including spectrum
charges.

To provide affordable services and to meet the projected teledensity target, access spectrum
usage charges be brought down to 0.5% of the AGR – just to recover the cost of
administering and regulating the spectrum resource.

Reduction of usage charges to 0.5% of AGR, would be more than sufficient to cover the cost
of administering and regulating the resource, considering that subscriber growth has
increased many fold in comparison to that at the time of fixing the charges.

The Second ITU Forum of the Regional Working Group on Private Sector Issues, held on
26-27 April, 2004, opined that :
Quote
“As regards the annual usage charges for spectrum there could be a view that once
the right to use the spectrum has been acquired by the licensee, then the usage
charges should be limited only to the cost of administering and regulating that
resource”
Unquote
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Special emphasis on growth of
broadband
 Broadband services require heavy investment and can reach the urban and rural
consumers only if services are offered at affordable and easy terms under Govt.
support as follows: Tax deductible status for expenditure on broadband connectivity / usage (similar
to policies for other public welfare services such as education allowance,
medical allowance etc).
 Provision of fund and allowing of loans at low interest rate to the users through
bank.
 Lower price for access device i.e. PC, set top box etc.
 Zero import and excise duties on CPE .
 Cent percent depreciation in CPEs like PCs, STB etc from the first year itself.
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Special emphasis on growth of
broadband
 Zero Customs duty and no CVD for imported broadband equipment & parts.
 Allow operators to set off the excise duty paid by them for procurement of
indigenous equipment.
 No entertainment tax (currently upto 30% in some states) applicable to
broadband in the short and medium term.
 Service tax be waived off for this sector in the short and medium term.
 Support to industry for setting up experience centres through tax breaks on such
expenses / investments.
 Telecom sector income tax breaks be extended to broadband sector as well.
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Indirect Taxes
 Customs Duty: All items required for the Telecom Projects including
the spares be brought under 0% basic customs duty category. With
growth of 5-6 million subscribers per month, the additional revenue will
in any event compensate for reduced taxes and levies.
 Additional duty of 4% on Handsets be removed to reduce the burden
on the customers and also reduce the losses to the telecom companies
as these are sold below cost price to make it affordable.
 Import tariff & excise duty on Customer Premises Equipment (CPE) be
brought to zero to make broadband affordable to masses, particularly
in rural areas.
 Custom duty on microwave equipment be zero (currently 27.8&
including 10% basic duty) similar to Base Transceiver Station (BTS)
under nptification No. 7/2004-customs dated 8th January, 2004
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Indirect Taxes
 “Wireless data modem/card with PCMCIA/USB/PCI Express
ports” which is an internet data card used as an accessory for PC be
inserted as item (h) at sl No.17 to notification No.6/2006-CE dt.
1.3.2006.
 Imports under EPCG and fulfillment of Export Obligation by group
company be permitted by suitably amending notification no: 97/2004
Customs dated 17/9/2004.
 Excise Duty on all indigenous telecom equipment be pegged at a level
of 8%.
 A notification be issued clarifying that BTS/Cell Sites(Towers) are not
goods and therefore not liable for excise duty, in view of the circular
no:58/1/2002 dated 15/1/2002.
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Indirect Taxes
 Service Tax be reduced to 10% or lower level which will lead to higher
consumption of services and thereby a larger collection by the Government.
 The proviso to Rule 3(4) that distinguishes between manufacturers and service
providers may be deleted from CENVAT Credit Rules, to enable the service
providers to avail credit of ACD on imported equipment.
 Clarification be issued stating that credit on 17 services specified under Rule
6(5) can be utilised in toto.
 Clarification be issued stating that ‘Interconnection Usage Charge’(IUC)
consisting of originating/transit/terminating charges is not liable to service tax.
 Telecom service sector like other service sectors be allowed the same benefits
under CENVAT for motor vehicles used for maintenance.
 20% limit on CENVAT Claim be reverted to earlier limit of 35%.
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Indirect Taxes
 Rule 6(3)(c) of CENVAT Credit Rules 2004 be amended and Service
providers providing both taxable and exempted services should have
the option of paying back the proportionate CENVAT Credit on input
services used to provide exempted output services.
 The provisions of Rule 6(6) be extended to output service providers
also enabling them to take input CENVAT Credit on input services used
for providing output services to specified units like (a) units in SEZ (b)
EOUs etc.
 A clarification regarding Service tax on import of services be issued to
do away with the requirement of registration of foreign company in
India. Credit should also be allowed of VAT or any other duty paid in
foreign country on the same income.
 Service tax should not be applicable on revenues from in-roaming.
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Direct Taxes
 Restore earlier Section 80 IA of the Income Tax Act to provide
100% tax exemption for 10 years to telecommunication service
providers in line with infrastructure facilitiy providers.
 Clarification on TDS for payment of interconnect usage charge
(IUC) by one operator to another is needed as TDS is not
applicable for the said payment.
 TDS on reimbursements be discontinued.
 Tax under section 115(O) on distributed profits of domestic
companies with respect to companies availing tax holiday U/S
80 IA be exempted.
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Direct Taxes
 TDS provisions should not apply on bandwidth charges and
payments for software to foreign companies. These payments
be exempted from with holding tax in India as these are
business income and not royalty income.
 Restoration of Exemption in respect of taxes on royalty & fees
under section 10(6A) to a foreign company for technical
services be restored.
 Clarification with respect to International roaming agreement
regarding applicability / non-applicablity of withholding tax u/s
195 of IT Act.
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Thank you!
Contact us at
auspi@auspi.org
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