In a setback to mobile operators, the Telecom Disputes Settlement and Appellate Tribunal on Thursday ruled that certain non-telecom revenues like rent, profit on sale of fixed assets, dividend and treasury income would be counted as adjusted gross revenue on which licence fee would have to be paid to the government.
The ruling has not gone entirely against the operators as it has exempted a large number of streams from the definition of AGR like capital receipts, bad debt, distribution margins to dealers and forex fluctuations, which would be beneficial to the companies; however, the gains made here are relatively smaller than in the streams that have been included. Further, the broad principle followed by the tribunal that income generated through a telecom company should be counted as telecom revenue and its timing is not favourable to the telcos.
Though the TDSAT disposed of the operators’ petitions against the government with its ruling, the decade-long issue is unlikely to end here as the operators are likely to challenge it before the Supreme Court. That’s because the Telecom Regulatory Authority of India had in January come out with a set of recommendations on the definition of AGR that was far more liberal but may now be junked, as the government is likely to stick to the TDSAT ruling.
Even if the matter is challenged before the SC, the government is unlikely to take any steps that may deviate from the tribunal’s ruling.
Mobile operators pay 8% of their adjusted gross revenue as licence fee to the government and since 2005-06 what constitutes telecom and non-telecom revenue has been a bone of contention between the industry and the government. The amount raised by the government has been disputed by the industry and stay order against the disputed amount has been obtained either by certain high courts or TDSAT in the past. Around three years ago even the Supreme Court had ruled that ideally any revenue generated through a company formed for the purpose of providing telecom services should be counted as revenue on which licence fee should be paid. However, the SC had said that since each component would require interpretation, the operators were free to approach the TDSAT. Thursday’s ruling is a result of this process.
This also means the government may not accept Trai’s January recommendations that were seen as liberal and pragmatic. For instance, on the computation of AGR for payment of licence fee, Trai had clearly delineated the non-telecom earnings, which would not be included in the definition. For the purposes it had brought in the concept of applicable gross revenue, which would be deducted from the gross revenue to arrive at AGR. For instance, income from dividend, interest, forex, capital gains, etc, would not be counted towards AGR.
Further, it had also recommended lowering the revenue share licence fee to 6% from the current 8%. The regulator had also said that the levy on the operators for the Universal Service Obligation Fund (USOF) should be brought down to 3% of their AGR against the current 5%.
According to the regulator, currently, of the 8% licence fee, 5% goes to USOF and the remaining 3% goes to the government. If the licence fee is reduced to 6% with the USOF contribution at 3%, the accrual to the government at 3% would remain intact.