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Budget 2017 leaves telecom industry disappointed over tax treatment of spectrum payments

Source | ET Telecom : By Kalyan Parbat

KOLKATA: Mobile phone companies are disappointed that Finance Minister Arun Jaitley has largely ignored their key demands in Budget 2017, especially for not clearing the air on tax treatment of spectrum payments.

Telcos had expected Jaitley to issue a specific budget clarification that spectrum allocated before April 1, 2016, would continue to be governed by Section 32 of the Income Tax Act, 1961, and not Section 35ABA, which would allow telcos to continue capitalising spectrum expenses and claim higher depreciation-related tax benefits.

The phone companies wanted Jaitley to clarify that Section 35ABA would not be applicable retrospectively for spectrum allocations before April 2016.

“We are disappointed that the economic well being and financial health of the telecom industry has not been addressed through the specific proposals we had highlighted,” said Rajan Mathews, Director General of the Cellular Operators Association of India (COAI), which represents India’s largest phone companies such as Bharti Airtel,
Vodafone India, Idea Cellular and newest operator, Reliance Jio Infocomm among others.

Vishal Malhotra, Tax Telecom Leader, EY India, seconded view, saying that the FM hasn’t proposed much for the telecom sector in his budget speech while acknowledging the importance of the telecom sector for the economy as also the digital initiative of the government.

Malhotra, however, said extension of the period for claiming MAT credit to 15 years from 10 years as well as extension of period for availing lower withholding rate of 5 % on external commercial borrowings and masala bonds likely to benefit the telecom industry.

The relaxation in transfer pricing compliance on specified domestic transactions, he said, should also assist in lowering the compliance burden of telcos other than those who continue to claim profit linked incentives.

COAI’s Mathews also welcomed the Rs 10,000-crore allocation for the national broadband project, BharatNet, saying “the earmarking of this sum from the available USOF proceeds, should speed up the high-speed broadband rollout and help bridge the digital divide”.

Ex-Viom Networks CEO Syed Safawi agreed that “the Rs 10,000 crore allocation for ramping up BharatNet would give “a decisive push to Digital India broadband penetration targets”.

The mobile phone industry, however, is unhappy as telcos had also urged the FM to exempt spectrum from the ambit of service tax on grounds that allocation of airwaves is a sovereign function and must not be taxed. Spectrum was brought within the ambit of service tax last April.

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