A Comptroller and Auditor General of India (CAG) audit of the books of India’s top six mobile operators for the period 2006-07 to 2009-10 has pointed out that the government suffered a loss of Rs 12,488.93 crore...
A Comptroller and Auditor General of India (CAG) audit of the books of India’s top six mobile operators for the period 2006-07 to 2009-10 has pointed out that the government suffered a loss of Rs 12,488.93 crore by way of revenue share licence fee and spectrum usage charge, as these companies under-reported their adjusted gross revenue by Rs 46,045.75 crore during this period.
This is the first audit report by the national auditor after the government’s decision, later upheld by the apex court that the revenue side of those private parties be audited who are using natural resources leased by the government, to ensure that the latter is not losing out on revenues.
However, what is likely to steal the thunder of the CAG’s finding is the fact that all the counts on which the under-reporting has been shown by the auditor is under dispute, and the matter is sub judice in different courts and tribunals between the operators and the department of telecommunications.
Given this, there’s not much the government can immediately do to recover this amount. The dispute between the operators and the government is over the definition of adjusted gross revenue, a percentage of which they pay as licence fee and spectrum usage charge. The mobile operators contend that only revenues accruing through services construe AGR while the government contends that revenues from other streams like forex gains, sale of fixed assets etc should also be counted towards AGR.
In response to the CAG report, a joint statement by operators’ associations — COAI and AUSPI — stated, “We would like to clarify that matters relating to interpretation of “gross revenue/adjusted gross revenue” of telecom companies for the purpose of calculation of licence fees are under litigation in various judicial forums including the TDSAT, high courts and the Supreme Court. The issues pointed out by the CAG pertain to those disputes, which have either been settled or stayed by various courts. Further, we would like to reiterate that our member companies follow the highest standards of corporate governance and have always been in compliance with all regulations”.
Though the CAG has gone by the government’s definition of AGR, it has criticised the DoT for not reviewing the disputes/litigation. It has also recommended that the definition of gross revenue and adjusted gross revenue should be revisited considering the drastic changes in the scenario since 1999 when spectrum was allocated administratively to the present when it is allocated through bidding process where operators have to pay considerable amount as one-time payment at the time of allocation of spectrum.
There are 13 counts on which the CAG has found under-reporting stating that while the companies concerned did not include these in their AGR, they should have done so as per the licence conditions. To illustrate an instance, the CAG has said, “Since commission/discounts etc paid to distributors/dealers/agents/franchisees is in the nature of business expense, netting off or reducing the revenue for the purpose of reporting GR/AGR for computation of revenue share to the government is against the licence agreement”.
Similarly, it has included expenses on promotional schemes, discounts given to post-paid subscribers, discounts on roaming pacts, infrastructure sharing, etc in the ambit of AGR on which licence fee should be paid.