Telecom services, VAS could get dearer

Font Size

Print

Feedback

Email

Discuss

: Finance minister P Chidambaram’s Budget provided no immediate relief to the telecom companies by way of reduction in licence fees, as was being demanded. Yet, measures like including development and supply of content for use in telecom and advertising, allocation of work contracts and commercial rentals, in the service tax net, will hurt telcos.

This may lead to a hike in tariffs as the companies may pass on the increased cost to the consumers. All telecom companies outsource value added services like content. Further, all contracts for cell sites would attract service tax along with the rental paid for the space where the sites are located.

A long-pending demand of the telecom sector has been to rationalise the number of levies on the sector, which works out to as high as 30% of the total revenue of companies.

Chidambaram, while acknowledging the merit of the request, has asked the department of telecommunications (DoT) to commission a study for a unified tax structure for the sector.

The move disappointed the industry as there are existing studies on the subject by the telecom associations and the Telecom Regulatory Authority of India (Trai).

However, the industry now expects that the study on single levies would be taken to its logical conclusion within a tight time-frame. Telecom companies pay licence fee, spectrum charges, access deficit charge, sales tax, custom duty, stamp duty, octroi, service tax etc.

In the process, the demand of the industry to reduce the payment of licence fee at 6% of the adjusted gross revenue (AGR) as against the present rate (6% to 10%) has also got stuck. It had been approved by the DoT long back.

Bharti Airtel chairman and managing director, Sunil Mittal said that, “we are glad that the finance minister has at least acknowledged, if not granted, a long standing demand of the industry to replace multiple levies with a single levy."

Idea Cellular managing director Sanjeev Aga welcomed the government's decision to form the committee. “Presently, we have as many as 8-9 levies, which aggregate over a third of a customer's bill. This high level of total taxation is retarding the expansion of services, mainly to unserved areas,” he said. However, he expressed dismay at the extension of service tax to areas like content provision, works contracts, commercial rents.