COAI submits Budget recommendations to government
The Cellular Operators’ Association of India (COAI) has submitted a budget recommendations to the government which include suggestions on central value added tax (CENVAT) Credit, deductibility of spectrum fees paid and tax withholding on distributors margin on sale of SIM cards and prepaid vouchers among many others.
The recommendations said domestic as well as cross-border payments of telecommunication services are under litigation on account of retrospective amendment in the definition of “royalty”.
“The traditional jurisprudence has been that telecommunication services were standard services and hence fee for same cannot be taxed as royalty under the provisions of the Act and Double Taxation Avoidance Agreements (‘DTAA’) signed by India with other countries.”
“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 characterization but also on the aspect of retrospective withholding of taxes.”
The COAI submitted this tax has resulted in an increase in the cost for end consumers in India since such payments are generally made on a net of tax basis, that is, tax cost in India cannot be passed on to the international operator.
“Therefore, to avoid increase in the cost of telecom services for Indian consumers, definition of the term ‘royalty’ should be amended with retrospective effect to exclude telephony, internet bandwidth and other similar services,” the industry body suggested.
Telecom companies have paid significant fee for acquiring spectrum through the auction route.
Noting tax authorities have “adopted inconsistent positions while assessing different telecom operators and there is also no judicial guidance on this issue since the matter is presently not sub-judice and is a matter of dispute at lower levels of tax authorities”, the COAI said there is an urgent need of clarity to dispel the confusion prevailing in the entire industry over this issue.
“In order to prevent protracted litigation over the matter and proactively settle the tax position in this regard, the government should issue a clarification that spectrum fees is an intangible asset eligible for depreciation under section 32 of the Act,” it added.
Regarding Swachh Bharat Cess (SBC) levy, the industry association said: “With levy of SBC, the effective rate of service tax has further increased to 14.5 percent and this would increase the overall cost of telecommunication services for customers. Given the fact that there are multiple other levies such as license fee, applicable on telecommunication industry, SBC should not be levied on telecommunication services.”
The recommendations stated that in the budget of 2014-15, the rate of interest on delayed payment of service tax was increased to 30 percent. “This rate of interest is not compensatory but penal in nature and the same should be reduced to a more reasonable rate.”
