Telcos call for big sops to connect India

Reeling under financial stress and high competition, the telecom industry expects rationalisation of taxes, especially a cut in goods and services tax (GST) rate and customs duty exemption for equipment required for 4G network.

The industry pays 30% of their revenues as taxes in form of various levies such as license fee, spectrum usage charges. It has been their long-standing demand that the levies should come down.

The Department of Telecommunications (DoT) is in the process of formulating a new telecom policy (2018), which should address some of the concerns of the telecom industry.

Cellular Operators Association of India (COAI) director general Rajan Mathews said the GST Council should take into account the need to reduce the rate applicable to the telecom sector, in line with how the sector is treated globally.

Also, customs duty exemption for LTE Equipment required for 4G network and telecom devices should be given. The next stage of evolution for the telecom industry is dependent on high-speed broadband which will be powered by 4G technology. It is also critical for government programmes like Digital India, Smart Cities, he said.

The penetration of telecom network was earlier aided by Customs duty exemptions given to 2G and 4G network equipment, which helped in reducing the cost for the consumers. However, the government has withdrawn Customs duty exemptions on telecom equipment towards promoting local telecom equipment manufacturing.

The scale and quality of equipment needed by the sector are not yet available in the country and the telecom companies have to pay a higher price to import the equipment.

The telecom sector is the biggest supporter of Make in India and the government needs to rethink its stand regarding customs duty on equipment to ensure timely roll-out of networks, he said.

Also, COAI suggested that a lower withholding tax rate of 1% may be prescribed for telecom distributors given the low margins earned by the distributors. This will also bring the ongoing litigation to an end on this issue which is pending in the Supreme Court. Telecom players have been saying that the discount extended to pre-paid distributors is not commission.

The government must look at reducing the applicable GST rate to 12% from 18% as the high cost of operations in India is putting questions on the sustainability of the industry in the short-term, he said.

IT

Though the priority of the government remains Digital India through various initiatives, the IT industry has its own set of demands.

Nasscom said the legislative and procedural issues of the IT sector under the GST should be resolved. "From an IT services perspective, there are several implementation challenges under the GST regime which impact export competitiveness, leading to likely disputes related to determination of place of supply, blockage in working capital due to self-supplies, treatment of head office, branch office transactions, etc. This is especially important, bearing in mind that nearly 80% of the turnover is export-related."

IT industry has $100 billion in exports, with a total share almost 50% in service exports and is expected to cross $150-billion revenue mark this year.

Last year, TDS was reduced to from 10% to 2% for payments made to call centres. The industry has been requesting for an across-the-board reduction of TDS rate to 2%. Nasscom president R Chandrasekhar said in the recommendations that this provision be extended to all software transactions. The margins are under pressure and for small companies, margins are further reduced, and a high TDS impacts cash flow.

A comprehensive review of the foreign tax credit provisions should be undertaken to ensure efficiency and ease of compliance, he said. At the time when the foreign tax credit law was drafted, India was an importer but the situation has changed today and the law needs to be reviewed from the perspective of exporting companies.

THE STORY SO FAR

• Telecom space is struggling with a cumulative debt of Rs 4.5 lakh crore with falling revenues since the entry of a new player
   
• IT industry has $100 bn in exports, with a total share almost 50% in service exports and expect to cross $150 bn revenue mark this year