Cut Regulatory Levies

Move will restore telecom companies’ health

The last few years have been challenging for the telecom sector, with debts amounting to 7.64 lakh crore. Sector employment is at an all-time low due to dwindling profit margins. This has resulted in the sector going through a phase of consolidation.

Keeping the sector’s poor financial health in mind, the government had released the draft National Digital Communications Policy (NDCP) 2018. One of the key points included in the draft NDCP are rationalisation of multiple taxes and levies, such as license fees, spectrum usage charges, universal service obligation fund, GST. Telecom service providers pay more than 30 per cent of their revenues in the form of taxes and levies, while telcos in the rest of the world pay only around 10 per cent.

In India, a nominal fee can be charged in order to recover the administrative cost. Spectrum usage charges should be reduced to 1 per cent of adjusted gross revenue, across all spectrum bands.

It is estimated that the sector has to spend as much as 2 lakh crore over the next 3-5 years, to install mobile towers, optical fibres and other infrastructure for the new technologies. It is imperative that the country’s telecom sector be treated as an essential service and taxed the minimum.

The NDCP 2018 had also set a target of attracting an investment of $100 billion in the Digital Communications sector. But generating a capital of this magnitude requires two things — either the sector should make sufficient profits that can be invested back into the business, or make the business attractive enough to attract funding from other sources.

Given declining revenues, obtaining funds has also been challenging. The returns on investment have plummeted to less than 1 per cent. The priority is to build easier funding routes. One option can be setting up of Telecom Finance Corporation (TFC). Telecom firms should be allowed to issue tax-free telecom bonds. Other options such as ‘tax holidays’ and low interest on debt owed to the government should also be considered.

There is also an urgent need to rationalise the Universal Service Obligation (USO) fund. A large portion of the fund amounting to around 50 crore is lying unutilised, whereas firms are increasingly rolling out service in the rural areas. DoT should act on the TRAI recommendations of reducing the USO Fund levy from 5 per cent of AGR to 1 per cent over a defined glide path.

Rationalisation of spectrum usage charges (SUC) is another area that needs urgent attention. There should not be any SUC for the spectrum that is acquired through auction, and paid for up-front. We believe this to be an unnecessary carry over from the time when spectrum was bundled with the license and paid for on a “revenue share” model over time.

The NDCP 2018 also recognises spectrum as a natural resource and therefore, should ensure its adequate availability, efficient usage and adoption of a fair and transparent allocation method for service providers. The policy also recommended the adoption of a “revenue optimisation” model for obtaining government revenue from the sector, instead percentage of “revenue maximisation” model, in order to guarantee sustainable and affordable access to digital communication.

Moreover, like in the case of GST, the set-off of license fee paid on input services against license fee payable on output services should be allowed. The levies on telecom sector should be in line with the tested principles of GST. – The Hindu Business Line

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