15% service tax on spectrum allocation and one-time spectrum payment increases cost of services: Indian telcos

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India’s GSM telecom operators, in their Budget recommendations, said that allocation of spectrum and one-time spectrum payment should not be subject to service tax of 15%. The telcos, through their industry body COAI, said that the tax increases the cost of providing telecom services due to credit blockage/ deferral, which has a direct and an adverse impact on common man.

The industry body said that "Assignment of spectrum, a scarce natural resource, is an important sovereign functions of the government and treating such activity as 'service' at par with normal commercial transactions is deviation from standard practices adopted across the world.”

COAI also suggested that interconnection, bandwidth and roaming charges should not be characterised as 'royalty'. It added that these charges should not attract 20 per cent TDS.

"Tax authorities have now started taking a position that payments made by telecom companies, even for standard telecom services, are in the nature of Royalty, resulting in protracted litigation not only on characterization but also on withholding taxes," the industry body said.


COAI represents top telecom operators like Bharti Airtel, Vodafone India, Idea Cellular, Telenor, Aircel, and Mukesh Ambani-led Reliance Jio, which is a new entrant in the market.

Also read: Reliance Jio doesn’t need COAI intervention over interconnection issue: Report

The body has also asked for a lower TDS rate of 2%on discount extended to pre-paid distributors. Telecom companies transfer prepaid vouchers and SIM cards to independent distributors at a discount, who further sell to retailers and subscribers.

"While the industry firmly believes that provisions of section 194H...are not applicable to discount extended to pre-paid distributors, in order to put an end to litigation, a position of applicability of TDS provisions on pre-paid discount may be acceptable to the industry on a go forward basis…However, considering the low margins, it is suggested that a lower withholding rate (say two per cent) may be prescribed since the rate of 5 per cent results in drastic reduction in the margins of small scale distributors," COAI said.

The industry body also sought clarification on the scope of exempted service for the purpose of reversal of CENVAT credit. Furthermore, it also flagged imposition of service tax on the Right of Way/access charges levied by local authorities.

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