Telecom companies, burdened with debt and engaged in a battle for customers, are set to ask the government to exempt them from goods and services tax on payments made towards spectrum and licence fees.
The Cellular Operators Association of India plans to write to the Department of Telecommunications to explain how their burden will ease if payment of regulatory levies by telcos is exempted from GST, people familiar with the matter said. Alternatively, they are seeking a refund of input tax credit of about Rs 30,000 crore because they’re unable to set it off against GST by charging their users due to intense competition and low tariffs.
“At an industry level, almost Rs 30,000 crore is stuck for all operators due to GST blockage,” said a person aware of the matter. COAI did not respond to ET’s queries on the issue.
The input tax credits have accumulated since GST was introduced in July 2017 and are impacting the balance sheets of telecom companies encumbered with debt of Rs 7 lakh crore and seeking a relief package from the government.
“The credit includes a significant portion of tax being imposed on government levies such as licence/ spectrum fees. The tax on such government levies or other procurements was never meant to have a cascading impact. However, given the present inability to utilise credits, the taxes on these procurements are blocked,” said Uday Pimprikar, partner, tax and regulatory services, at EY India.
“The working capital challenges of the telecom sector can be partly alleviated by enabling a speedy refund of accumulated input tax credits. It is also essential to deal with the issues of declining average revenue per user, which may lead to further accumulation in future on account of the significant capex spends by the sector,” said MS Mani, a partner at Deloitte India.
Industry experts said the accumulated input tax credit is impacting the working capital of telcos. COAI had said earlier that debt restructuring, a cut in licence fees and spectrum charges, and the release of input tax credit locked up with the government are among the steps that can alleviate their stress.
Competition triggered by the entry of Reliance Jio Infocomm in September 2016 has resulted in consolidation that’s reduced the eight-operator market to three private companies – Bharti Airtel, Vodafone Idea and Jio.
Vodafone Idea posted a loss of Rs 4,974 crore in the quarter ended September, while Bharti Airtel, now India’s No. 2 telco, posted a 65% fall in profit.
ET reported last week that the government is considering a relief package for the telecom industry.
Source :  The Economics Times