Union Budget: COAI seeks essential tax reforms to revitalise Indian telecom sector

Telcos budget expectations: The Cellular Operators Association of India (COAI), the leading industry body representing the digital communications ecosystem in India, has presented its recommendations for the upcoming Union Budget 2024-25 to the Union Finance Ministry. COAI believes these recommendations are crucial for enhancing the financial health of the telecom sector, essential for advancing the government’s mission of digital empowerment and inclusivity.

COAI has called for the abolition of the Universal Service Obligation Fund (USOF) levy, citing the significant capital investments required for 5G deployment. Alternatively, COAI suggests suspending the 5 per cent USO contribution from Adjusted Gross Revenue (AGR) until the existing USO corpus of approximately Rs 80,000 crore is utilized. Additionally, the industry body recommends reducing the License Fee from 3 per cent to 1 per cent to cover only administrative costs, alleviating the financial burden on Telecom Service Providers (TSPs).

Clarification on GR definition

COAI has expressed concerns over the current definition of Gross Revenue (GR), which includes revenue from all telecom activities. The ambiguity around the term “telecom activity” has led to confusion, potentially encompassing incidental revenue. COAI proposes a precise definition of GR, excluding revenue from activities that do not require a license.

The association emphasises the need to exempt Service Tax on the "assignment of right to use natural resources" granted by the Central Government, State Governments, and Development Authorities. The Supreme Court's ruling on AGR calculation has imposed additional financial burdens on telecom companies. Before GST, Service Tax was paid on AGR payments with credit available. Post-GST, the additional AGR payments, coupled with Service Tax, have become a cost burden as no credit is admissible.

Exemption of Customs Duty

Over the past few years, the Indian government has gradually increased customs duty on telecom equipment to 20 per cent, significantly impacting the cost of 5G rollout. COAI has requested customs duty exemptions for certain telecom equipment to mitigate these cost challenges. The association recommends reducing customs duty to zero, then gradually increasing it as the domestic ecosystem for telecom gear manufacturing develops. Until high-quality, competitively priced domestic equipment is available, COAI urges the government to reduce customs duties for 4G and 5G network products and related items to nil.

GST Exemption

Telecom operators currently pay GST under the Reverse Charge Mechanism (RCM) on payments made to the Department of Telecommunications (DoT) for License Fees, Spectrum Usage Charges, and Spectrum acquired in auctions. This, combined with subsequent Input Tax Credit (ITC) utilization, has led to significant ITC accumulation within telecom companies, blocking substantial working capital and imposing a heavy financial burden.

Dr SP Kochhar, Director General of COAI, stated, “Over the past decade, the Government of India has taken several reformative steps to fuel India’s digital ambitions and achieve accelerated growth. The telecom industry plays a pivotal role in this transition by providing affordable connectivity and inclusivity. Reducing the levy burden on TSPs and facilitating investment opportunities are strategic investments for the country’s future. We hope the government will consider these recommendations in the upcoming budget and help the industry navigate these prolonged challenges. With 5G expected to catalyze digital transformation across sectors, we urge the government to prioritize telecom infrastructure development. By doing so, the government can set a precedent for visionary policymaking, driving India towards a robust digital future.”

The telecom industry remains optimistic that the GST Council will consider COAI’s recommendations to improve the ease of doing business and restore the financial health of this critical sector.