Telcos To Face Special Audit Next Month For Understating Revenues

The Union government will, in March, begin a special audit of telecom companies for alleged understating of revenues, causing a loss to the exchequer, it is learned. The Department of Telecommunications (DoT) has selected seven auditors to examine the books of mobile phone operators from 2011 to 2018, according to two-person privy to the development.

The audit will be carried out on seven telcos including Bharti Airtel, Vodafone and Reliance Jio. State-run firms MTNL and BSNL, as well as those which have exited or merged with other players, will also be audited, one of the sources said.

The DoT is likely to issue audit notice to all these companies soon. The notice will be served under clauses 22.5 and 22.6 of the Unified Access Service Licence that allows DoT to comb the books of the operators, said another source.

The telecom department had shortlisted at least 15 auditors to give representation about the plan of an audit. The exercise had been completed last week and accordingly, they have selected a final lot of auditors. The auditors will be given an operator each to assess the concealed revenue.

The auditors have been given the mandate to examine the “accounting adjustments for commissions or discounts paid to distributors, promotional schemes like free talk time and discounts to postpaid subscribers, and on roaming services,” said one of the auditors. The audit report is expected to be submitted in three months.

Queries sent to Vodafone, Jio, Bharti Airtel, MTNL and BSNL did not elicit any response.

The move comes at a time when the sector is grappling with liquidity issues seeking various measures such as debt restructuring, insolvency resolution and release of input tax credit stuck with the government.

The department has already briefed the auditors about the key issues and concerns. “The auditors have highlighted some of the key reasons for under-reporting of revenue by mobile operators,’’ one of the persons quoted above said. Waivers given to both pre and post-paid subscribers as well as the possibility of non-inclusion of forex gains and interest income could be among the reasons.

The telecom department wants auditors to check the billing to post-paid customers, revenue from broadband subscribers, billing to the internet data centre, the sale of SIM card/recharge/e-recharge, the sale of the handset, revenue from the leasing of infrastructure and so on.

Besides, the auditor would also look into the collection from the installation fees, late fees, sale proceeds of handsets, revenue on account of interest, dividend, value-added services, roaming charges etc (as part of gross revenue).

The DoT has also asked auditors to find out more about the configuration of tariff plans in the billing systems and discrepancies in call duration and charges.

The special audit was triggered by a 2017 report of the Comptroller & Auditor General of India (CAG). The report said a clutch of telecom companies were found to have understated revenues by more than Rs 61,000 crore over a period of five years, resulting in short payment of nearly Rs 7,700 crore in statutory dues to the government. The telcos were Bharti Airtel, Vodafone, Idea Cellular, Aircel, Sistema Shyam Teleservices, and Reliance Communications. Other than these, Tata Teleservices, Telenor, Videocon Telecom, Quadrant Televentures, and Reliance Jio Infocomm were also mentioned in the CAG report. These firms understated their adjusted gross revenue (AGR) by over Rs 14,800 crore, resulting in a shortfall of Rs 1,526.70 crore to the government, according to the report.

Mobile service operators are required to share a percentage of their AGR with the government as an annual licence fee. Currently, operators pay 8 percent of their AGR as license fee. In addition, telcos need to pay spectrum usage charges for using airwaves allotted to them.

The government is concerned about the continuing shortfall in its revenue collection from the telecom industry. According to data available with the Telecom Regulatory Authority of India (TRAI), the gross revenue of telecom service providers and licence fees paid to the government declined by about 10 percent while AGR dropped more than 8 percent on a year-on-year basis in 2018.―India Finance News