The Government, keeping in mind the significance of this sector for digital economy, has announced a series of reforms in September 2021 such as moratorium on payment of AGR dues, 100% FDI through automatic route, reduction in bank guarantees etc. With these reforms, the Government has reinforced its commitment towards the prime sector of economy and has aligned the players with its vision of building a digital society.

Now, with upcoming Budget on the table, the industry is pinning its hopes on the Finance Minister to offer further breather and actualize certain long due demands.

On the direct tax front, introduction of necessary clarification in law for settlement of the long pending dispute with respect to non-classification of trade margins extended by telecom companies to telecom distributors under a \u2018Principal to Principal arrangement\u2019 as \u2018commission\u2019 and non-applicability of tax withholding provisions thereon has been a persistent demand from the industry. Going forward, considering low margins earned by the distributors together with the compliance burden associated with such withholding, the Industry would welcome a clarification that such trade margins do not qualify as commission and at best, commensurate with the low margin earned by the distributors, going forward, a withholding tax rate of 1% may be prescribed.

Rationalisation of 2012 retrospective amendment in \u2018royalty\u2019 definition to include charges for transmission by satellite, cable, optic fibre, etc. is another area which demand immediate attention. The amendment has brought a wide array of standard telecommunication services (domestic as well as cross-border payments, even those covered by tax treaties) under review by the tax authorities and culmination of substantial tax demands, even against foreign telecom companies not having any presence in India.

This has resulted in extensive litigation for both the payers and payees of such telecom services. It is high time that the Government re-emphasizes the supremacy of bilaterally negotiated tax treaties and clarifies that the amendment is subservient to the tax treaties and further payment for standard telecom services do not qualify as royalty and hence are not liable to tax withholding.

On the indirect tax front, one of the major challenges for the telecom sector is increasing accumulation of input tax credit resulting in blockage of working capital. The industry is currently stressed with an accumulated credit of INR 35,000 crores and is looking up to the Budget 2022 for a time relief through grant of refund or appropriation of this amount with other statutory dues. Further, the Hon\u2019ble Finance Minister is required to look at the sector and inject it with a booster dose by exempting levy of GST on license fees, spectrum acquisition charges and spectrum usage charges in the wish-list of telecom sector.

The Government over past few years have increased the custom duties on import of equipment to promote its vision of \u2018Make in India\u2019. Though, the Government has announced PLI scheme to incentivize domestic manufacturing, nonetheless, the availability of right set of domestically manufactured equipment to meet the ever-increasing demand would take some more time to turn into reality. As the sector prepares for the next wave of investment to improve network performance and 5G rollout, there is a requirement to reduce the customs duties for critical telecom equipment. Further, another round of PLI scheme is required to bring more telecom products and manufacturers in the eligibility list to augment the creation of domestic ecosystem for such critical products.

As we are witnessing the effects of pandemic, it is seemingly clear that many things will never be the same again. The telecom sector is the key enabler for this new \u2018work from home\u2019 era and is unquestionably the backbone for \u2018Digital India\u2019. Socrates said that \u2018If you would seek health, look first to the spine\u2019 \u2013 thus, the industry is hopeful that the Government would move some of the items from wish-list to the cart which would certainly provide much-needed thrust to this critical sector.","blog_img":"","posted_date":"2022-01-25 08:25:14","modified_date":"2022-01-25 08:25:14","featured":"0","status":"Y","seo_title":"Budget 2022: Telecom industry seeks rationalization of levies to meet the mounting requirement of working capital","seo_url":"budget-2022-telecom-industry-seeks-rationalization-of-levies-to-meet-the-mounting-requirement-of-working-capital","url":"\/\/www.iser-br.com\/tele-talk\/budget-2022-telecom-industry-seeks-rationalization-of-levies-to-meet-the-mounting-requirement-of-working-capital\/5205","url_seo":"budget-2022-telecom-industry-seeks-rationalization-of-levies-to-meet-the-mounting-requirement-of-working-capital"}">