Debt-laden industry looks for a bailout

Thomas K Thomas | Updated on July 10, 2014

Reduction of overall levy on the operators will help ease the pressure on the industry

For the last 10 years the Budget has been a non-event for the telecommunications industry. Every year, the heavily taxed industry takes its set of demands to the Finance Ministry hoping to get some relief. Despite being one of the biggest revenue earners for the Government and a key infrastructure sector, the wish list of the telecom players remains just a list.

But this year, the industry hopes that things will change with a new Government in place. The primary reason for the optimism is the pro-investment sentiments attached to Prime Minister Narendra Modi. Rajat Mukarji, Chief Corporate Affairs Officer at Idea Cellular, said, “If the central need of the new Government is to encourage investment in the country as a whole, then it can ill afford to allow its show piece industry to remain constrained. In this new regime where hope reigns supreme, it is only fair to expect that some of the past errors will be corrected.”

So, the wish list is being pushed with renewed vigour. The No. 1 item on the list is reduction of overall levy on the operators. Currently, telecom industry is subject to service tax, license fees (including universal service obligation fees) and spectrum charges. In addition there are imposts at the State level such as Octroi, VAT, stamp duty, entry tax and levies on towers. All of this accounts for nearly 30 per cent of an operator’s revenue. “It is suggested that an industry friendly single taxation structure in telecom sector be implemented,” said Dmitry Shukov, CEO, MTS India.

The biggest worry for the telecom companies is the massive accumulated debt of close to ₹2,50,000 crore. As a result, companies are finding it tough to get fresh funding from banks.

According to Anup Vikal, Chief Financial Officer, Aircel, the government should raise the cap on funds through the ECB (external commercial borrowing) route and enhance the end use to include debt repayment, spectrum purchase and other operational purposes.

Manoj Dawane , Vice-President for Technology, GIR and Sustainability at Ericsson, said the proposal to bring telecom sector at par with other infrastructure sectors in terms of tax benefits and availability of funds at low interest rates should be given priority. Investments of $150 billion are required to meet the tele-density targets of the 12th Five Year Plan by 2017 for which access to lowcost funds is the key. “It is critical that we move towards a GST regime that will help provide a unified tax policy. This will have far-reaching benefits, not just to telecom, but across industry,” said Sandeep Bhargava, Director-Government Relations, Nokia India, a subsidiary of Microsoft Mobile Oy.

The telecom industry is hoping to quickly rise back to its former glory with gigabytes of Government support.

But for that the Government will have to stop looking at telecom as revenue gnerator and start acknowledging it as basic right of every citizen, says Hemant Joshi, Partner, Deloitte Haskins & Sells.

(With inputs from S Ronendra Singh)

Published on June 08, 2014

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