Pre Budget Recommendations€¦ · Recommendation Prescribe the provisions for Centralized...

© COPYRIGHT 2013, COAI 1

Pre Budget Recommendations


COAI was constituted in 1995 as a registered, non-governmental society.

The Association is dedicated to the advancement of modern communication through the establishment of world-class

mobile infrastructure, products and services and to delivering the benefits of innovative and affordable mobile

communication services to the people of India.

COAI has emerged as the official voice for the Indian telecom industry and interacts directly with Ministries, Policy

Makers, Regulators, Financial Institutions and Technical Bodies.

COAI collaborates with other Industry Associations such as CII, FICCI, ASSOCHAM, ICA, TAIPA, ISPAI, GSMA, etc.,

with the objective of presenting industry consensus view to the Government.

COAI has played a major role in the setting up and operations of the Telecom Sector Skill Council (TSSC) in India under

the aegis of the National Skills Development Corporation (NSDC). TSSC is registered under the Societies Registration

Act 1860, with members from COAI, ICA, TCOE, NSDC, TAIPA, Govt., telecom industry and academia.

About COAI


Core Members

1. Bharti Airtel Ltd

2. Reliance Jio Infocomm

Ltd

3. Vodafone Idea Ltd.

COAI Members

Associate Members

1. Atria Convergence Technologies Pvt. Ltd.

2. Amazon Seller Services Pvt. Ltd.

3. Apple India Pvt. Ltd.

4. Ciena Communications India (P) Ltd.

5. Cisco System India Pvt. Ltd.

6. ECI Telecom India Pvt. Ltd.

7. Ericsson India Pvt. Ltd.

8. Facebook India Pvt. Ltd.

9. Google India Pvt. Ltd.

10. Huawei Telecommunication Company Pvt.

Ltd.

11. Indus Towers Ltd.

12. Juniper Networks Solution India Pvt Limited

13. Nokia Networks

14. Qualcomm India Pvt. Ltd.

15. Sterlite Technologies Ltd.

16. ZTE


Telecom a key contributor to the economy

2nd largest private sector investment in

infrastructure – INR 10,44,000 croresSource: DoT, PQ

Among the highest contributors

to Govt.: nearly INR 58,000

crores paSource: TRAI, COAI estimates

Among Highest contributors

in FDI in last two decades –

INR 188,248 croresSource: DIPP

Contributes 6.5% to

India’s GDPSource: GSMA

Contributes directly to 2.2 Mn

employment and indirectly to

1.8 Mn jobsSource: GSMA

Source: GSMA The Mobile Economy India Report, 2016, DoT, Industry Estimates, TRAI ,

PQ= Parliament Question

Investment in Spectrum Auctions

since 2010: INR 3,68,000 croresSource: DoT/WPC

Lowest voice & data rates in

the world

( ARPU Rs. 72) Source: TRAI PIR

Over 500,000 villages

coveredSource: DoT, PQ


Strategic intervention required in the Telecom Sector

to enhance financial viability, adopt innovation,

make investment in network and Research & Development

and adopt new technologies


NDCP-2018 - policy for driving digital India

Broadband for All

Connectivity to all uncovered areas

4 Million Additional jobs in Digital Communications Sector

Fixed Broadband access to 50% of the households

Contribution of the Digital Communications sector to 8% of India’s GDP

100 Mbps broadband on demand to all key development institutions

USD 100 Billion has been targeted in NDCP-2018


Support Industry request for Reduction of Regulatory levies

NDCP Clause 2.1.b.(i) :Reforming the licencing and regulatory regime to catalyse Investments

and Innovation, and promote Ease of Doing Business by: Reviewing of levies and fees

including LF, SUC and the definition of AGR and rationalisation of Universal Service

1) USOF:

Out of the Rs. 96,674 crores collected for the USOF between 2003 to 2019, Rs. 50,554 crore

remained unutilized, (around 50% is unutilised).

While TSPs are going rural, they still have to pay the USOF levy

Industry request:

USOF contribution should be put in abeyance till the entire existing amount of this corpus

gets fully disbursed.

Or

Reduction in the USO contribution immediately to 3%.

2) Remaining License Fee:

Industry request: Reduction of remaining License Fee from 3% to 1% of AGR


Allow Principle of Input Line credit

Concept of setting off the license fee paid on input services against license fee payable on

output services has been formally approved in the NDCP 2018 by the Union Cabinet.

Point 2.1 (b) (ii) of the NDCP 2018.

o Follow the proven principles behind GST, service tax, VAT, etc. where such tax/levy is

payable at each step of Input Services, and thereafter, adjusted/set off against such

tax/levy payable by the recipient of such service.

o Every service provider who is supposed to pay L.F. on its services to DoT, would charge

the said L.F. as part of the invoice to the recipient of such services and deposit such

L.F. with DoT.

o Recipient of service should be allowed to deduct the said L.F charged by the input

provider out of the total L.F payable by the recipient.

o Such a mechanism would also ensure that there is no double taxation at any stage.

Industry Request: Constitute a working group comprising of members from DoT, TRAI,

Industry Associations & other stakeholders to prepare Guidelines for adopting the

principle of Input Line Credit


Provide funding to Telecom Companies at lower rate of interest

Telecom industry is capital intensive as it needs to continuously adapt itself to the latest

technology.

Telecom is an infrastructure sector, for meeting the future investment estimates, the funds

need to be generated through foreign as well as domestic sources.

It is imperative for the telecom sector to generate funds from domestic sources at affordable

rates.

Request government to facilitate funding at lower rate of interest so as to plough more funds

for network upgradation, maintenance and expansion to provide state of art service at

affordable rate to the people.

Industry Request:

Government to facilitate funding at lower rate of interest to Telecom Companies to reduce the

overall cost of capital and mobilize cheaper funds.


Taxation Issues


Taxation issues: Agenda

Indirect Taxes

GST

Remove GST on License Fees, Spectrum Usage Charges and Payment of Spectrum acquired in auction.

Refund of accumulated ITC, which cannot be utilized in near future

Reduce multiplicity of Compliance, Audits, Investigations and Litigations for Large Pan India service providers

Issue clarification that GST paid on goods and services used for erection, installation of telecom towers is

available as input tax credit.

Service Tax

Exempt service tax on “Right of Way” granted by the Central Government / State Government and

Development Authorities (Pre GST Issue).

Customs

Exempt Custom Duty on certain telecom equipment which presently increases the cost of rolling out critical

infrastructure

Entertainment tax by local bodies

Refrain from levy of entertainment tax on “entertainment” provided through online media / interne being

imposed by Municipal & Local Authorities.

Direct Taxes

Remove limitation of 15 years period for utilisation of MAT credit under section 115JAA

Amendment in section 72A – Conditions of amalgamating companies


Indirect Tax


Remove GST on License Fees, Spectrum Usage Charges and

Payment of Spectrum acquired in auction

Background:

Telecom Industry is presently burdened with huge debt and working capital constraints. The

entire industry, due to the market dynamics, has accumulated massive input tax credits, which

has resulted in blockage of working capital. Levy of GST on License Fees, Spectrum

Acquisition Charges and Spectrum Usage Charge is further compounding the operational

challenges.

These charges are paid to the Government by the Telcos for parting with its privilege and does

not result in any supply of goods or services under the GST law. In line with the international

practice, payment of regulatory levies (LF, SUC, spectrum payments) made by telecom

operators should be exempted from tax under GST

Recommendation

Specific decision that GST would not be applicable on the License Fees, Spectrum Usage

Charge and Payment of Spectrum acquired in auction would extend a huge relief to the

entire industry.


Refund of accumulated ITC, which cannot be utilized in near

future

Background:

The telecom sector is currently facing extreme financial hardship. This has resulted in

accumulation of ITC of approx. INR 35,000 Cr for the all the Telcos. The cash starving industry

requires release of this accumulated ITC.

The Input / output offsets for GST are out of balance for operators as output (Revenue) has

been declining, whereas inputs have remained stable or increased. This imbalance between

input and output on GST has led to large credits, amounting to almost INR 35000 Cr. We

request this amount may be refunded or applied to other government liabilities of operators.

Recommendation

GST regulations may be amended or notification be issued to allow refund of accumulated

ITC. This should be done immediately to improve cash flow of the ailing telecom industry.


Reduce multiplicity of Compliance, Audits, Investigations and

Litigations for Large Pan India service providers

Background:

GST regime necessitates registration, compliance, audits and assessments in all 37 States/

UTs instead of the Centralized registration option available under the erstwhile Service tax

regime.

The TSPs have registration in all States and UTs and on an average are filing 800 returns vis

a vis 2 returns per year under the pre-GST regime. Thus, the compliance has gone up multi-

fold.

It is submitted that a centralized assessment / audit mechanism in the context of TSP will

ensure ease of doing business with no corresponding loss of revenue to the government.

Recommendation

Prescribe the provisions for Centralized assessment / Audit Procedure for ‘PAN India’ TSPs

as well.

This may be made applicable to large tax taxpayer units having a pan India turnover of

more than Rs 1,000 cr AND presence in more than 12 States/Union Territories. This would

limit this facility to less than 1% of all Corporates.


Issue clarification on availability of ITC on Telecommunication

Towers

Background:

Telecommunication towers are essential for provision of telecommunication services and are

integral part of overall telecom infrastructure. The claim of ITC is being disputed while treating

them to be immovable and on account of exclusion from the definition of ‘Plant and

machinery’. Ineligibility of ITC on Telecommunication towers will increase cost of provision of

service.

Further, some of the state tax authorities MP in particular, has initiated enquiry with an intent to

disallow ITC on the telecom equipment installed on the telecom towers by taking a view that

these equipment’s are part of telecom tower.

Recommendation

ITC on telecom towers and shelters should not be denied. The provisions should be

modified to make GST paid on Telecommunication towers to be available as ITC.


Exempt service tax on “Right of Way” granted by the Central Government/

State Government and Development Authorities (Pre GST issue)

Background:

Exemption Notification No 1/ 2018-Service Tax dated 30 November 2018 exempts levy of Service tax on

services provided by way of granting permission of “right of way” by “local authorities” during the period from

01 July 2012 to 30 June 2017.

However right of way permissions are also granted by the Central Government/ State Government and

Development Authorities and due the exclusion in the said notifications, the service tax authorities are

perusing to recover the service tax from these department / authorities and consequently they are passing

their liabilities on the telecom operators.

Above notification be amended to also include “appropriate authority” in addition to the exemption already

granted to “local authority” or a fresh notification be issued covering service tax payable on service by way of

right of grant of way an “appropriate authority” as defined under right of way rules 2016.

Recommendation

Scope of Exemption Notification No. 1/2018-Service Tax needs to be expanded.

Exemption should also be extended to “Right of Way” services by the Central and State

Government Department as well as by other Development Authorities.


Exempt Custom Duty on certain telecom equipment which presently

increases the cost of rolling out critical infrastructure.

Background:

BCD of 20% is levied on import of most of Telecom equipment. Basic Customs Duty (BCD) on

various 4G/5G related network products, notably MIMO/ LTE products, Soft switches and

Voice over Internet Protocol (VoIP) equipment, DWDM Optical Transport Network (OTN),

Multiprotocol Label Switching-Transport Profile (MPLS-TP) products etc., has been doubled to

20%. Due to the hike in Customs Duty, service providers will incur additional cost, and this will

over burden the already stressed telecom industry and hamper rollout of critical networks.

Recommendation

Customs Duties for the 4G/5G related network products along with other related products

should be immediately brought down to NIL as this is critical because of the essential

nature of these imports to meet the National Vision of a Digital India. Till the time good

quality equipment is available in India at affordable price, BCD should not be increased.


Refrain from levy of entertainment tax on “entertainment” provided through

online media/ internet being imposed by Municipal & Local Authorities

Background:

The determination of place of consumption in respect of entertainment services enjoyed

through internet will be impractical as the services are used on the move. Telecom service

providers having all India operations, will need to take multiple registrations and shall therefore

be subjected to multiple compliance burden. Further inability of determination of place of

supply will result in multiple litigations

Recommendation

The scope of entertainment tax by local authorities should be restricted to the physical

entry-based entertainment only.


Direct Tax


Remove limitation of 15 years period for utilisation of MAT

credit under section 115JAA

Background:

Any unutilised MAT credit, at present can be carried forward for 15 subsequent years.

Considering the economic stress of the telecom sector, there is strong possibility of MAT

credit getting lapsed, resulting into permanent loss of duly paid taxes.

Recommendation

Limitation of 15 years period for utilisation of MAT credit under section 115JAA should be

removed to provide respite to companies to utilize their accumulated MAT credit.


Amendment in Section 72A - Conditions of amalgamating

companies

Background:

As per Section 72A of the Income Tax Act, the amalgamated company should hold 3/4th of the

book value of fixed assets of the amalgamating company for 5 years. The condition to hold

3/4th of old fixed assets for a period of 5 years restricts the amalgamated company to dispose-

off old equipment and thus, puts an undue restriction on the telecom companies (and also

other high technology driven businesses) which are required to regularly upgrade their network

infrastructure through investment in newer technology.

Recommendation

Bring down the threshold of keeping 3/4th of the book value of fixed assets to 1/4th to be

held for maximum two to three years. The relaxation of this condition would also facilitate

environment supporting digital India initiative of Government.


Thank You


Indian is the Second Largest wireless market in the world…

Source: Ericsson Mobility Report Q4 2018

38

67.5

5258

41

105

155 156.5

115.5

North America Latin America WesternEurpoe

Central &EasternEurope

Middle East Africa APAC(excludingChina and

India)

China India

Mobile Subscription (in Crores)

India telecom subscribers grew at a CAGR of 4.4 % since FY 11-19.

© COPYRIGHT 2013, COAI 25Source : DoT

Telecom has the 2nd Largest private sector investment in the Infrastructure

• To meet the growing data usage Indian TSPs have invested approx Rs. 10.44 Lakh Crores in the last 20

years in setting up a world class telecom Infrastructure and acquiring spectrum.

• Investment in Spectrum; Industry has committed Rs. 3.68 lakh crores in spectrum auctions since 2010.

118.77

9.41 3.64

61.16

109.88

65.79

368.65

2010 2012 2013 2014 2015 2016 Total

Spectrum Pay-out Commitments (in Rs. '000 Crores)


India has the biggest Telecom network infrastructure in the world

Pan India 2G/3G/4G Coverage

Source : Tarang Sanchar Portal

Number of BTS (Technology Wise) (as on November 01, 2019)

BTS Type Count

GSM 5,13,873

CDMA 886

3G 3,49,937

4G 13,66,212

WiMAX 2,155

Total 22,33,063

© COPYRIGHT 2013, COAI 27Source: TRAI Reports, GR Figures includes revenue from Access ,NLD & ILD

Revenues of Telecom Sector remains under pressure…

2.132.34

2.55 2.64 2.752.55

2.34

0.00

0.50

1.00

1.50

2.00

2.50

3.00

FY13 FY14 FY15 FY16 FY17 FY18 FY19

GR

(in

Rs

lakh

cro

res)

Industry GR (in Lakh Crores) (FY)

0.62

0.580.58

0.590.58

0.62

-6.1%

-1.0%

2.0% -1.0%

5.3%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

0.55

0.56

0.57

0.58

0.59

0.60

0.61

0.62

0.63

Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

GR

(in

Rs

lakh

cro

res)

Industry GR (in Lakh Crores) (Qtr)

© COPYRIGHT 2013, COAI 28Source: TRAI Reports, AGR Figures includes revenue from Access ,NLD & ILD

Adjusted Gross Revenue continues to decline …

1.411.58

1.761.88 1.91

1.561.45

0.00

0.50

1.00

1.50

2.00

2.50


AG

R (

in R

s la

kh c

rore

s)

Industry AGR (in Lakh Crores) (FY)

0.36

0.370.36 0.36 0.36

0.39

2.39%

-1.12%

-0.24% -0.34%

8.88%

-9.00%

-6.00%

-3.00%

0.00%

3.00%

6.00%

9.00%

12.00%

15.00%

0.33

0.34

0.35

0.36

0.37

0.38

0.39

0.40

Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

AG

R (

in R

s la

kh c

rore

s)

Industry AGR (in Lakh Crores) (Qtr)

© COPYRIGHT 2013, COAI 29Source: Operators Quarterly results, COAI Analysis

Realisations have fallen significantly…

4844

3127

2419

16 14 12 11 13 13

0

10

20

30

40

50

60

Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

in p

aise

/min

Voice realisation

18

16

1.9 1.7 2.1 1.8 1.4 1.17 1.07 1.02 0.78 0.75

0

2

4

6

8

10

12

14

16

18

20

Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

in p

aise

/MB

Data realisation


As a result ARPU has declined significantly …

Source: TRAI

105113

121125

8376

71

0

20

40

60

80

100

120

140


Monthly Average Revenue Per User (ARPU) for Wireless Services (INR)


Sector continues to be highly indebted…

Source: Operators Quarterly results, COAI Analysis

0.81.2

1.61.9

2.42.7 2.8

3.8

4.6

7.7

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Debt of the Telecom Industry (in INR Lakh Crores)


And EBITDA is not enough to meet the Interest expenses

Telecom EBITDA Continues to contract, while the Interest expenses of the Industry continues

to increase.

As a result Interest Burden as a% of EBITDA has increased significantly

19.6%18.7%

26.9%

33.9%

69.4%

49.1%

56.1%

64.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

Interest burden as a % of EBITDA

© COPYRIGHT 2013, COAI 33Source: TRAI

Indian Telecom Industry is one of the highest contributor to the Government Exchequer.

• Indian Telecom Industry contributes more than Rs. 100 billion to the Government Exchequer per

year.

• However, the contribution has been falling as revenues of the sector are under pressure.

49 48.0 48.050.0 51.0

49.0

44.0

40.038.0 37.0 36.0

31.6 30.8 30.131.5 31.3

34.1

0

10

20

30

40

50

60

Q1

FY16

Q2

FY16

Q3

FY16

Q4

FY16

Q1

FY17

Q2

FY17

Q3

FY17

Q4

FY17

Q1

FY18

Q2

FY18

Q3

FY18

Q4

FY18

Q1

FY19

Q2

FY19

Q3

FY19

Q4

FY19

Q1

FY20

in b

n

LF & SUC

Contribution to Government Exchequer in (Rs. Bn)


Levies on the sector are still the highest

Source: Analysys Mason, TRAI, Country Regulator Websites; Operators

1: Varies across province; 2: For voice / SMS / VAS, only 10.2% for data related services; 3. Mobile & fixed subscribers levy; 4. Nation Building Tax levied on multiple sectors; 5. Environment conservation levy applicable to multiple sectors; 6. Levy on international voice and video calls 7. Telecom levy includes 10% MSL; 8. 0.5% or RM 50,000 whichever is higher

Pre Budget Recommendations€¦ · Recommendation Prescribe the provisions for Centralized...

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