In an ideal world, given the government charges so much from telecom companies by way of spectrum bids—as a share of industry revenues, spectrum bids plus licence fee (LF) and spectrum usage charges (SUC) to government are up from 11% of industry revenue in FY07 to 32.4%·in FY17—both LF and SUC need to be reduced dramatically. Ideally, this should be a fixed sum, just enough to fund the administrative expenses of the telecom sector, or perhaps 03-0.5% of the industry’s turnover. What the turnover is, though, is a contentious matter since both LF and SUC are levied on what is called adjusted gross revenues (AGR) and despite various court rulings, there is no clarity on what can be deducted from GR to arrive at AGR. The Cellular Operators Association of India (COAI) is now proposing a solution to the vexatious problem that is worth considering.
If a bill of Rs 100 is raised from a consumer, it says, let’s treat this as the revenue—forget the distinction between AGR and GR for right now. The government will get Rs 18 from this as the GST component, exactly as it does today. Telecom companies now have to pay, say, X per cent of the GR as LF and SUC—any revenue-share based on AGR eventually translates into a revenue-share based on GR after all. So when, say, an RJio or a Vodafone has to make a payment to a Bharti Airtel for incoming calls—the interconnect usage charge—let it deduct part of the X it has paid for LF/SUC; that is, allow the LF/SUC charges to be VAT-able or, to use the new term, GST-able. The government will end up getting a slightly lower LF/SUC compared to what it got in the past since telcos will end up using some part of this as an input credit, but there are several advantages of trying out this model. For one, the tax burden—that is what LF/SUC really amount to—gets reduced by a few percentage points. Two, and more important from the government’s point of view, the debate over the definition of AGR and GR gets resolved immediately. Even if the government decides to, in the new telecom policy, to lower LF/SUC to a more reasonable amount, the same principle of VAT-ability is a good one.