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Service tax on spectrum allotment will affect telecom industry

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The proposal to levy 15 per cent service tax on all spectrum allotments and transactions among licensees will hit the telecom industry financially, putting initiatives of Digital India and Smart Cities at risk, an industry body said on May 11.

Service tax-AV

Terming assignment of spectrum as a sovereign function, something not viewed as an economic activity globally and as such not liable to tax, Assocham said taxing sovereign functions is extremely regressive and the impact of this for developing countries like India is far more punitive than developed economies.

“Service tax on spectrum assigned by the government to telecom operators is detrimental to the growth of industry while increasing cost of provision of service and directly impacting the common man,” Assocham said in a letter to Finance Minister Arun Jaitley.

“The proposed levy of service taxes on spectrum, estimated at Rs 30,000 crore (in year one itself), will further push the industry teetering to the edge of financial distress.” It argued that this is against the National Telecom Policy, 2011, focus of which is on affordability and accessibility.

The body urged the Finance Ministry to restrict the proposed service tax on all spectrum allotments to only transactions involving spectrum trading among private operators. Besides, credit on such transactions should also be not deferred.

It felt that the move of increasing spectrum cost will impact the health of the industry and will adversely affect the investible corpus of telecom operators leading to challenges in rolling out new technology, networks like 4G.

Moreover, this is expected to materially affect and dent the ability of operators to participate and bid in future auctions while impacting some of them from the survival perspective, it added.

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