Telecom operators including Bharti Airtel, Reliance Jio and Vodafone-Idea on Wednesday have called for an urgent tax reforms to revitalise Indian telecom sector from the upcoming Budget 2024-25.

In the recommendations for the upcoming Budget 2024-25 to the Ministry of Finance, Cellular Operators Association of India (COAI), the industry body representing the digital communications ecosystem in the country, including the three operators said that these recommendations will help enhance the financial well-being of the sector, which is crucial for fulfilling the government’s mission of digital empowerment and inclusivity for its citizens.

Some of the key recommendations include request for abolishing regulatory levies – Universal Service Obligation Fund (USOF) and annual gross revenue (AGR); exemption of service tax on additional AGR dues; exemption of customs duty; extension of carry forward of business losses from eight years to 16 years for telecom sector; and exemption of GST too.

Considering the huge capital that telecom service providers (TSPs) have to invest in the current scenario, especially for the deployment of 5G, COAI recommended that the USOF levy be abolished.

Alternatively, the government may consider the suspension of the USO contribution of five per cent of AGR till the existing USO corpus of around ₹80,000 crore is exhausted.

The operators urged the government to exempt Service Tax on the additional AGR liability arising from the Supreme Court judgment. Specifically, relief has been requested for the exemption from Service Tax payment for the period from April 2016 to June 2017, and on various services issued in November 2018.

Alternatively, COAI proposes that the government prescribe a streamlined, time-bound process for claiming a cash refund of the Service Tax paid under the Reverse Charge Mechanism (RCM), which would provide significant relief to the industry, it said.

COAI also requested that the license fee be urgently reduced from three per cent to one per cent, so that it just covers the administrative costs by the Department of Telecommunications (DoT)/ government thereby relieving the TSPs from additional financial burden.

Similarly, on AGR, the industry body said the present definition covers revenue from all telecom activities and therefore, the definition of GR be made precise, stipulating that the revenue from activities for which no license is required should not be a part of GR.

On extension of carry forward of business losses, COAI said that the existing provisions provided eight years limitation to business losses which may result in lapse of losses for those companies who have longer recovery journey.

It urged the government to address above concern by introducing a special regime for the telecom operators under Section 72 of the Income Tax Act, 1961 wherein the business losses can be carried forward and set-off till 16 assessment years from the existing eight years.

To prevent misuse of this extended time limit, a restriction can be put on dividend distribution wherein any dividend distribution within five years from date of utilisation or set-off of unutilised losses by the company can attract additional dividend distribution tax of 25 per cent (in addition to TDS), up to the amount of losses set-off by the company, on which no deduction or credit will be available to company or shareholder, it said.

On exemption of Customs Duty, COAI has requested exemptions on customs duties for certain telecom equipment to alleviate the cost challenges associated with deploying this critical infrastructure. Until high-quality equipment is available domestically at competitive prices, COAI requested to reduce customs duties for 4G and 5G network products, as well as other related items, to nil.

The TSPs also urged for an exemption from GST under RCM on these payments, which will alleviate the financial burden by preventing further ITC accumulation and releasing blocked working capital.

“Over the past decade, the government has undertaken several reformative steps to fuel India’s digital ambitions and achieve accelerated growth. We hope the government will consider these recommendations in the upcoming Budget and help the industry navigate through these prolonged challenges,” SP Kochhar, Director General, COAI, said.

With 5G expected to catalyse digital transformation across sectors, the industry also urges to prioritise telecom infrastructure development, he said. “By doing so, the new government can set a precedent for visionary policymaking, driving India towards a robust digital future,” Kochhar added.