Proposed service tax on spectrum to increase mobile bills

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The Cellular Operators Association of India (COAI) said that the Finance Bill 2016 proposal to declare spectrum allocations as services will result in an additional tax burden of Rs. 77,000 crore for the telecom operators. Customer will end up paying higher tariffs for telecom services as this additional tax levied will be passed on to them.

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"The service tax levy on spectrum assignment means that during auctions lined up for June-July, where reserve price is around Rs 5.36 lakh crore, the industry will have to cough up minimum Rs 77,000 crore as service tax. This is a substantial financial burden on the industry which is reeling under debt," the COAI said in a statement. This will also have an adverse impact on the government's 'Digital India' initiative and financial inclusion plan, it added reports Times of India.

The Finance Bill 2016 has proposed that assignment of spectrum and subsequent transfer thereof to be declared as services under Section 66E of the Finance Act, 1994. It has said that all government services have been made liable to service tax and to be paid by the recipient on a reverse charge basis with effect from April 1, 2016.

Further, the government has proposed that the Cenvat Credit of the tax so imposed on such assignment is proposed to be deferred over the life of the license period which mean that the industry will be burdened by a minimum effective cost of Rs 40,000- 50,000 crore.

"It is worth noting that what is meant to be a 'zero cost' in the cenvat credit system for any operator who has adequate output service tax, will convert up to a 71% cost of the tax imposed. The cost on account of deferral of credit would severely impact the health of the telecom industry," the industry body said.

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