Telcos may get relief on taxes, input costs

Instant refund of input tax credit is unlikely as this would require the approval of the GST Council, but immediate bailout may include other measures such as a soft loan.

The Centre is working on a two-pronged strategy to aid the crisis-ridden telecom industry by rationalising tax and levies for long-term sustenance of the strategic sector that will follow an immediate bailout package to avert the present crisis involving the payment of ~1.47 lakh crore adjusted gross revenue (AGR) dues before March 17, officials aware of the developments said on Sunday.

Signage for Bharti Airtel Ltd. stands outside a mobile phone store in Mumbai.(Bloomberg)

In order to boost the sector in the long run, the government is considering proposals such as reduction in the Goods and Services Tax (GST) on telecom equipment and services from 18% to 12%, slashing the levy on the Universal Service Obligation (USO) from 5% to 3% and expeditiously refunding input tax credits worth about ~36,000 crore, two officials from separate ministries said on condition of anonymity.

Instant refund of input tax credit is unlikely as this would require the approval of the GST Council, but immediate bailout may include other measures such as a soft loan, possibly from the accumulated USO Fund, which is more than ~50,000 crore, one of the officials said.

Hindustan Times on Friday reported that the government was considering an immediate bailout package to salvage stressed telcos, particularly two private telecom operators, Airtel and Vodafone Idea, including a review of the calculation of the amount owed by them and allowing them to pay part of the AGR revenue in instalments.

The USO Fund is used to create telecom infrastructure and offer telecom services in inaccessible and non-profitable areas. The USO Fund was established from April 1, 2002. The USO levy is decided by the government in consultation with the Telecom Regulatory Authority of India (TRAI) as a percentage of a telco’s revenue share. At present, telcos pay a license fee of 8% of the adjusted gross revenue, inclusive of the USO levy, which is 5% of the AGR.

Private companies have shown their intent to pay AGR dues after the Supreme Court on February 14 directed the Department of Telecommunications and companies to comply with its October order to pay the AGR dues. Until last week, Airtel paid ~10,000 crore and Vodafone Idea paid a total of ~3,500 crore in two instalments. According to the SC verdict, the telcos were expected to pay AGR dues of about ~1.47 lakh crore by January 23, 2020. Airtel owes around ~35,000 crore and Vodafone Idea about ~55,000 crore. The government is keen to offer a bailout package before the next hearing of the Supreme Court, which is on March 17, the officials said. The government is considering various options because it wants to prevent any telco from going out of business, something that would, given the size and importance of these firms, adversely affect the investor’s sentiment, restrict consumers’ choice and increase stress in the banking sector. As per an Inter-Ministerial Group report in August 2017, the total debt of the telecom industry was ~7.88 lakh crore that included exposures of Indian banks. The government has also sought legal opinion in the light of the recent verdict of the Supreme Court before it takes a final call soon, the officials said.

As reported by HT on Friday, at least three senior cabinet ministers are directly involved in this matter. Bharti Airtel chairman Sunil Mittal on Thursday met telecom minister Ravi Shankar Prasad. Any package will be announced only after intensive consultations among them, the officials said. “AGR is an unprecedented crisis for industry, which is being dealt with by government,” Mittal was quoted as saying by news agency PTI on Thursday. Mittal and Vodafone Idea chairman Kumar Mangalam Birla had met finance minister Nirmala Sitharaman individually on Wednesday.

The second official mentioned above said the Digital Communications Commission or (DCC) on Sunday discussed the financial package. The government had re-designated the Telecom Commission as DCC in 2018, which is chaired by the telecom secretary and its part-time members include the CEO of NITI Aayog, secretary economic affairs (finance ministry), the secretary in the ministry of electronics and information technology (MeitY) and the industry secretary. DCC advises the government in formulating telecom policies, budget for the department of telecom, and implementation of the government’s policies pertaining to telecommunications.

Spokespersons of the finance ministry, ministry of telecom, law ministry, Vodafone Idea and Airtel declined to comment on the matter.

Former finance secretary Subhash Chandra Garg said: “India needs a healthy and competitive telecom sector. It would be in national interest if Vodafone Idea survives as a strong player.” He said that the closure of any firm would mean non-performing assets (NPAs) getting transmitted to banks. “The duopoly of Jio-Airtel would not be in the interest of the country. India needs a healthy and competitive telecom sector,” he added.

At the Hindustan Times Leadership Summit in December, Birla had said that Vodafone Idea would have to shut shop if the company does not get any relief. “If we are not getting anything, then I think it is the end of story for Vodafone Idea... They (government) have publicly stated that they want three players from the private sector and one player from the public sector, so I think we can expect much more stimulus from the government because it is required by the sector to survive,” he said.