Bharti Airtel and Reliance Jio, two leading Indian telecom operators could see tax demand from the authorities of up to Rs 14000 crore. The situation could arise due to the latest judgement from the Supreme Court of India. Note that the Supreme Court recently deemed that the license fee paid by the telcos is “capital in nature”. This means that the telcos can’t treat it as a revenue expenditure anymore and will have to treat it as a capital expense.
Also, it is worth noting here that the Supreme Court has not cleared its position on whether this provision will be applicable on a retrospective basis or not. But given the order from the apex court, the tax authorities could jump into action and ask the telcos to clear the shortfall in tax payments for the prior period, along with applicable penalties, said Kotal Institutional Equities (via thehindubusinessline).
If retrospective tax is put on Airtel and Jio for 2020-23, then according to Kotak, the telcos would have to pay Rs 6000 crore (Airtel) and Rs 8,400 crore (Jio), respectively.
What is the Supreme Court Decision that is Causing Worries for the Telcos?
On Monday, the Supreme Court said that the entry fees as well as variable annual license fees under the Telecom Policy 1999 will be treated as capital expenditure. Delhi High Court in 2013 had determined that the annual license fees would be treated as revenue expenditure. But this recent decision from the Supreme Court now sets aside the ruling from the Delhi High Court.
If the retrospective tax comes into play, then it would mean a significant one-time impact on the finances of the telcos. However, Kotak believes that in the long term, the impact would reduce as the license holding period is quite long for the telcos.