COAI said that the Swachh Bharat Cess (SBC) should not be levied on telecommunication services, as it further increases the overall cost of telecom services for customer. The Swachh Bharat Cess was imposed at the rate of 0.5 percent on provision of all taxable services with effect from November 15, 2015.
“Given the fact that there are multiple other levies such as license fee, applicable on telecommunication industry, SBC should not be levied on telecommunication services. With levy of SBC, the effective rate of Service tax has further increased to 14.5 percent and this would increase the overall cost of telecommunication services for customers, the body said in its recommendations for the Union Budget for FY 2016-17 to the Finance Ministry. “It has been clarified by the Government that credit of SBC cannot be availed and SBC cannot be paid by utilizing credit of any other duty or tax,” COAI said.
Further, COAI also urged the government to reduce the rate of interest on delayed payment of service tax to a more reasonable rate. The rate of interest on delayed payment of service tax was increased to 30 percent in the budget of 2014-15. When it comes to direct taxes, the GSM lobby body has asked for clarity on the withholding tax obligation on payments made in consideration for the spectrum acquired in the course of the spectrum trading, as part of direct taxes.
“There is some uncertainly on the withholding tax on spectrum trading under section 194J of the Income Tax Act, 1961,” COAI said, adding that the clarity would facilitate an effective implementation of spectrum trading in India and reduce or eliminate any potential tax dispute arising out of such transactions. COAI has also urged the government to eliminate the tax withholding on distributors’ margin on SIM cards and prepaid vouchers. “The Distributors merely act as intermediaries in the distribution channel, in the same manner as Distributors of common consumer goods,” it said.
COAI also said that there is an urgent need of clarity to dispel the confusion prevailing in the entire industry over the deductibility of spectrum fees. “In order to prevent protracted litigation over the matter and proactively settle the tax position in this regard, the government should issue a clarification that spectrum fees is an intangible asset eligible for depreciation under section 32 of the Act,” it said.
The body also urged the government to not characterize telecom services as ‘Royalty’. Presently, domestic as well as cross-border payments in respect of a wide array of telecommunication services are under litigation on account of retrospective amendment in the definition of ‘Royalty’ vide Finance Act, 2012.
“The same has resulted in an increase in the cost for end consumers in India since such payments are generally made on a net of tax basis, i.e. tax cost in India cannot be passed on to the international operator,” COAI said.
COAI’s key recommendations on both direct and indirect taxes include CENVAT Credit and balance of CENVAT Credit of cess.