The clarity in the Budget on the tax regime on spectrum trading and sharing by the Centre could offer some relief to telecom service providers, industry veterans and analysts said. Even though trading will become expensive as operators will have to pay service tax, the clarity will avoid possible litigation.

“I propose to amend the Finance Act, 1994 so as to declare assignment by the government of the right to use the radio-frequency spectrum and its subsequent transfers a service, to make it clear that assignment of right to use the spectrum is a service liable to service tax and not sale of intangible goods,” said Finance Minister Arun Jaitley.

According to analysts, this clears a lot of confusion, as the announcement would help remove anomalies of dual taxation which, in turn, would reduce litigation.

“The proposal is to tax it as a declared service and hence service tax would apply. Also, it is not to be considered as a sale of intangible goods. It will definitely hit the industry from a cash flow perspective,” Anita Rastogi , Partner (Indirect Tax), at PwC India, said.

She said the ultimate impact on consumers would have been higher in case the levy was value- added tax, as the industry would not have got credit being a service provider.

The proposal is also in line with what Cellular Operators’ Association of India (COAI) had proposed to the Finance Minister in their pre-Budget recommendations, seeking clarification on payments made in connection with trading/ sharing of spectrum.

“This would facilitate an effective implementation of spectrum trading and reduce/ eliminate any potential tax dispute arising out of such transactions,” it had said in its letter.

However, Vishal Malhotra, Tax Partner (Telecom Practice) at EY, said it still needs to be seen if the States adopt a consistent position with regard to levy of VAT on such transactions.

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