Budget 2023-24: Suspension of regulatory levies, removal of duty on imported equipment are telecom sector's key asks

• Telecom industry lobby Cellular Operators Association of India (COAI) has come up with a wishlist for the upcoming Budget 2023-24.
• These demands include a temporary suspension of regulatory levies like Universal Service Obligation (USO), in addition to tax relief.
• COAI has also urged the government to exempt customs duty on import of telecom equipment to ensure a smooth rollout of 5G services in the country.

With the Budget 2023-24 fast approaching, several sectors of the Indian economy have come up with a list of expectations from the government for their respective industries. The Cellular Operators Association of India (COAI) has come up with its wishlist for the telecom sector.

Key among its demands are a reduction in regulatory payments of license fee and spectrum usage charges, besides a temporary suspension of regulatory levies like Universal Service Obligation (USO).

“Telecom is one of the highly-regulated sectors in the country. Given the huge burden of taxes and regulatory levies on telecom operators, and the critical nature of the service to drive Digital India, a special benefit may be provided to telecom operators by way of exemption of GST on regulatory payments of license fee, spectrum usage charges and spectrum assigned under auction,” said SP Kochhar, director general, COAI.

COAI is the apex telecom lobby and counts Reliance Jio, Bharti Airtel and Vodafone Idea amongst its core members. Its associate members include Apple, Google, Facebook and Qualcomm’s Indian units.

Here are the key demands of COAI

Suspension, reduction of regulatory levies

Telecom companies currently have to pay 5% of the adjusted gross revenue (AGR) as Universal Service Obligation (USO) to the government. COAI wants this levy to be suspended till the existing USO fund is exhausted. It also wants the license fee to be reduced from 3% to 1%.

The funds collected under USO are used to deliver affordable connectivity to remote areas like the Northeast India, the Andaman & Nicobar Islands, and other rural areas of the country. For instance, the BharatNet project to provide affordable broadband services is run using the funds from the USO levy.

Clarification of services included in telecom activities

COAI has also asked the government to clarify the definition of telecom activities for the purpose of calculation of gross revenue. At present, the term “telecom activities” is not defined, and may include activities which are incidental or ancillary to the primary telecom services.

The group wants the government to define telecom activities such that revenue from activities that do not require any license should not be included for the computation of gross revenue.

Special tax regime for telecom companies

COAI has also asked the government to extend the period for carry forward of business losses for the telecom sector from the existing 8 years to 16 years.

Under the existing regime, any business losses that have been carried forward but not completely set off will lapse after eight assessment years.

Further, under section 72A of the Income Tax Act, an amalgamated company can carry forward the losses of the amalgamating company provided it holds 75% of the book value of fixed assets of the amalgamating company for a period of 5 years.

COAI wants these requirements to be relaxed to 50% of the book value of fixed assets, and the holding period reduced to 2-3 years.

Further, the industry body wants the rate of tax deducted at source (TDS) under section 194H of the Income Tax Act to be reduced to 1% from the existing 5% for telecom distributors.

Exemption of customs duty on telecom equipment imports

The industry body also wants the government to exempt telecom equipment imports from basic customs duty of 20% to ensure smooth rollout of 5G services in the country.

A basic customs duty of 20% is charged on import of IP radios, LTE products, optical transport equipment and other telecom equipment.

Apart from this, COAI has also urged the Central Board of Indirect Taxes and Customs (CBIC) to direct its field officers to not charge customs duty on cable- laying vessels outside India’s territorial waters. CBIC had earlier issued a clarification that customs duties on such activities are not applicable, but COAI says that the board’s field units are still insisting on payment of duties on these activities.

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