Budget 2021

Telecom sector expects tax relief

S Ronendra Singh New Delhi | Updated on January 17, 2018 Published on January 17, 2018

IT sector wants tax reduction in a phased manner

There have been several changes in the telecom and Information Technology (IT) sectors in 2017 – Reliance Jio’s full-fledged services panning out, the 2G case and issues related to H1B visas.

But all said and done, the industry is now looking at what the Budget has in store for them, and if the Finance Minister Arun Jaitley would announce any tax exemptions on any item related to the industry.

This will be an important Budget as it will be a first after the GST implementation and second after the demonetisation

According to industry veterans and experts, the telecom industry expects the Budget to be good for some of the tax-related issues, if not many. For instance, more clarity on the right of way (RoW) rules, as the transactions between the municipal/local bodies should not be taxed.

According to Mahesh Uppal, Director at consultancy firm ComFirst: “The industry would want a cut in the GST rate. The industry have always felt that there should be some relaxation in the levies/ tax that they pay, which amounts to 30 per cent of its revenue. It is in the form of one or the form such as licence fee, spectrum usage charge, among others, which should come down.”

The adjusted gross revenue of the telecom sector has come down to ₹41,669 crore as of second quarter in the current financial year compared to ₹50,539 crore in the same period of the previous year. It was further down in the first quarter to ₹39,778 crore compared to ₹53,384 crore in the first quarter of previous year.

However, the Budget may not have much to offer for the sector, as the Department of Telecom (DoT) is also working on the new Telecom Policy (2018), which may answer many queries.

100 per cent FDI

The DoT was also working on proposal to allow 100 per cent FDI for telecom services through the automatic route, which allows firms to attract foreign funds without its approval. At present, 100 per cent FDI is allowed, of which, up to 49 per cent investment in a company can be done through the automatic route. The inflow of overseas investment beyond that requires government approval because of security reasons, which the Cabinet may announce later.

In 2017, the sector in India was full of consolidation, and 2018 will be a year of growth, according to the experts. The government is finalising relief package for the sector, which includes proposal to give more time to telcos to make spectrum payments.

These measures are based on recommendations made by the inter-ministerial group (IMG), which are again expected to materialise with the new Telecom Policy expected by March. India’s telecom sector is also expected to make significant progress for the deployment of 5G services in 2018, according the analysts.

IT recommendations

In the IT industry, some of the recommendations include comprehensive review of the foreign tax credit provisions to be undertaken to ensure efficiency and ease of compliance.

“The time when the Foreign Tax credit law was drafted, India was an importer. Things have changed today. The law today needs to be reviewed from the perspective of exporting companies as the IT sector stands today. Indian companies operating in global environment should not be at a disadvantage just because they are leading India’s economic march on the world stage,” said R Chandrashekhar, President, Nasscom.

He said there is discriminatory treatment of Indian investors, too, which should also be looked at. For instance, the long-term capital gains from the sale of unlisted shares in the hands of non-residents, attracts a tax of 10 per cent, whereas it attracts a tax of 20 per cent in the hands of residents. “Angel investors come in at the earliest stage of the company with highest risk. Imposing Angel tax on start-ups has a direct impact on them as it taxes investment they have received from domestic investor,” said Chandrashekhar, adding that the start-ups have no revenues or profits and their valuation is based on the potential and promise of the idea, the background and competence of the founding team.

“It is usually a matter of negotiation between the founders and the angel investors. It is often wrong for one party or the other, but it is simply impossible to create a frozen logic for such investments, be it DCF or a valuation by merchant bankers, etc,” said Chandrashekhar.

He said last year the TDS was reduced to from 10 per cent to 2 per cent for payments made to call centres, and that the industry has been requesting for across the board reduction of TDS rate to 2 per cent.

“We request that this provision be extended to all software transactions. Our request is driven by the fact that margins are under pressure. For small companies, margins are further reduced, and a high TDS impacts cash flow,” he said.

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Published on January 17, 2018
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