GSM industry body COAI has asked the government that Swachh Bharat Cess (SBC) should not be levied on telecommunication services as there are multiple other levies applicable on the industry.
The government had imposed SBC at a rate of 0.5 per cent on provision of all taxable services with effect from November 15. Further, it was clarified that the credit of SBC cannot be availed and the cess cannot be paid by utilising credit of any other duty or tax.
In its budget recommendations, Cellular Operators Association of India (COAI) said with levy of SBC, effective rate of service tax has further increased to 14.5 per cent and this would increase the overall cost of telecommunication services for customers.
“Given the fact that there are multiple other levies such as licence fee, applicable on telecommunication industry, SBC should not be levied on telecommunication services,” it said.
Regarding direct taxes, COAI said there is some uncertainty on the withholding tax obligation, if any, under section 194J of the Income Tax Act, 1961 on payments made in consideration for spectrum acquired through trading.
“Therefore, a clarification may be issued that payments made in connection with the trading/sharing of spectrum are not in the nature of royalty and hence do not attract withholding tax obligations,” it added.
It said this would facilitate an effective implementation of spectrum trading and reduce any potential tax dispute arising out of such transactions.
The industry body has also sought to amend the definition of the term ‘Royalty’ with retrospective effect to exclude telephony, internet bandwidth and other similar services.
COAI said domestic as well as cross-border payments in respect of a wide array of telecom services are under litigation on account of retrospective amendment in the definition of ‘Royalty’ vide Finance Act, 2012.
“By virtue of this amendment, payments made by telecom companies, even for standard telecom services could be considered as ‘Royalty’ by tax authorities, resulting in protracted litigation not only on characterisation but also on the aspect of retrospective withholding of taxes,” it added.
Regarding withholding tax on distributors’ margin on SIM cards and prepaid vouchers, COAI said it is suggested that the government clarify that distributors’ margins on sale of SIM cards and prepaid vouchers are not in the nature of ‘commission’ and hence not subject to withholding tax provisions.
It also asked the government should issue a clarification that spectrum fees is an intangible asset eligible for depreciation under section 32 of the Act.
COAI said in the budget of 2014-15, the rate of interest on delayed payment of service tax was increased to 30 per cent.
“This rate of interest is not compensatory but penal in nature and the same should be reduced to a more reasonable rate,” it said.