India has the second largest number of mobile subscribers in the world and the telecom sector contributes significantly to India’s GDP.
The telecom sector fuels economic growth in the country in addition to driving growth of a number of ancillary industries. The advent of 4G/LTE will provide subscribers faster and more reliable service that will break the barriers between the ‘online’ and ‘brick and mortar’ world.
This will drive the digital economy and change the way people function starting from shopping, interactions, communication, banking and even public governance. However, given the level of capital investments required in the sector, telecom operators are burdened with huge debts. Reforms which help reduce the debt burden and clearer policies with respect to taxation top the telecom service provider wish list.
The Centre is giving a great push to the ‘Make in India’ initiative. Telecom tower companies have been granted infrastructure status which has enhanced the benefits to various stakeholders. Similar benefits could be extended to all telecom players through tax holidays, investment-linked incentives which would benefit the sector. The infrastructure status could be extended to handset and telecom equipment manufacturers who meet certain required norms to incentivise and provide a great impetus to domestic manufacturing.
Incentivising mobile payments would enable greater financial inclusion and move towards cashless economy. Greater fund allocation of initiatives like Digital India, Smart Cities as well as access to internet connectivity to our people in rural India would surge growth by increasing the income generating activities and swelling the domestic spending.
On direct taxes, some expectations are:
Clarification may be issued that payments made in connection with the trading/sharing of spectrum do not attract withholding tax obligations.
Definition of the term ‘Royalty’ should be amended with retrospective effect to exclude telephony, internet bandwidth and other similar services.
On indirect taxes, some expectations are:
With multiples taxes and levies applicable on the telecommunication sector, the stakeholders have also demanded for removal of Swachh Bharat Cess levied on telecommunication services.
Significant balances of CENVAT credit of cess is lying unutilised as on May 31, 2015, in the books of service providers which are not eligible to be set off against any output service tax liability. Amendments to allow utilisation of such credit of cess balance available in the books of the service providers.
(The author is a partner with KPMG’s TMT consulting practice)
