Government Study Suggests India Should Ease Tax On Telecom Firms Like In China
A telecom tower stands of the city skyline at dusk. (Photographer: Waldo Swiegers/Bloomberg)

Government Study Suggests India Should Ease Tax On Telecom Firms Like In China

An internal study by the government revealed that Indian telecom companies, contributing about 6.5% to the country’s GDP, are discriminated based on tax compared to Chinese peers, according to a government official.

Telecom companies in India are not allowed input tax credit on telecom towers, and refund of accumulated goods and services tax paid on spectrum charges, the official said quoting the study—the person spoke on the condition of anonymity as details aren't public yet. By comparison, the official said, China identifies the sector as its national 'champion'.

The study cites value-added tax reforms launched by China last year that allow firms to avail an extra 10% credit to their ‘champion’ industries, the official said. The study pitches for a similar arrangement for Indian telecom companies.

Chinese companies can claim more credit of the tax paid than they are eligible for. By contrast, according to industry estimates, Indian telecom companies have up to Rs 50,000 crore stuck as input credit with the government until March, impacting their cash flows.

India's telecom players have to pay about 29% to 32% in GST, licence fee, spectrum usage charge, among others, Rajan Mathews, director general of Cellular Operators Association of India, told BloombergQuint. This, he said, is higher than 20-25% imposed by countries like Sri Lanka, Pakistan, China, Malaysia and Bangladesh.

“The Indian government is extracting money from the telecom companies instead of helping them like the other countries, including the Chinese,” he said.

According to Rajat Mohan, partner at AMRG & Associates, India's telecom companies are going through difficult times due to intense competition. On top of that, tax authorities have been denying tax credit on telecom towers, and other capital expenditure incurred on laying down fibre cable networks, he said.

Credit is getting accumulated as they are not receiving it for other eligible capex spending such as setting up fibre optic cable network, said Mohan.

The current circumstances call for providing relief to telecom companies as they have acted as a backbone when the entire country is working from home, the official quoted earlier said. The government is yet to take a call on whether any relief can be provided, another government official told BloombergQuint.

The Covid-19 pandemic has shown how critical telecom networks are, and because of increased demand, telecom companies have to start investing more to expand the network, Mathews of COAI said. The government, he said, should provide some support to telecom companies for this.

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