The Ministry of Commerce has taken the telecom sector out of its export promotion scheme — Served from India Scheme (SFIS) — with retrospective effect.
“The decision to bar the telecom sector from this benefit had already been taken while framing the Foreign Trade Policy (FTP) 2009-14. However, following representation from the sector, discussions were held with the sectoral regulator — the Telecom Regulatory Authority of India (Trai) — before starting the implementation. After the discussions, it is now decided that the scheme will not only be made unavailable to the sector from 2009-10 onwards but also the ineligibility will be made effective with retrospective effect since 2005,” said an official closely associated with the development in the ministry.
This means, all cases where the telecom providers have availed of the benefits of this scheme will be opened for scrutiny and excess grants will be recovered since 2005.
Industry sources said this would have considerable effect on the sector players since revenue from overseas operations for telecom players roughly size up to Rs 7,000-8,000 crore per annum. If the players are barred from 2005 onwards, which is even before the last foreign trade policy 2004-09, the recovery of the amount will have a substantial impact on the government’s revenue and loss for the sectoral players.
SFIS is a nodal export promotion scheme for the service industry where an exporter avails of duty entitlement as in terms of exemption from paying an import duty up to 10 per cent of the export turnover. The import is strictly restricted to capital goods and these benefits are non-transferrable.
Telecom players commented that the issues were under examination before the sector was again made applicable for this scheme. Till that time this was a temporary direction before setting things right by working out a right formula or taking legal advice, they added.
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This move follows a decision of the ministry to review the export promotion schemes as far as their ability to enhance export competitiveness is concerned.
Officials said there has been a lot of discrepancies observed in the way the telecom players in India are offering international services and earning foreign exchange on that. Various international services offered by Indian telecom providers are handing and routing international long distance calls (ILDs), roaming incoming and outgoing calls, acting as cable landing station, leasing lines, acting as access point provider for mobile networks, among others.
“The core issue is to ascertain whether the infrastructure for such services are based in India or are operated outside since most of these services are controlled through multiple layers of agencies and network providers. Whether the foreign exchange earned out of such services is offered through Indian service providers or are earned on infrastructure based out of India is difficult to ascertain and is a grey area. Therefore, it is difficult to quantify the benefits a telecom service provider is actually earning through this scheme by offering services based in India. If the scheme was not serving its purpose, which is helping the Indian businesses earn foreign exchange by using infrastructure in India, it was pointless, explained the officials.
With this decision of last week, all cases of telecom players offering international services and those who have availed the SFIS benefits since 2005 will be reopened for scrutiny and the telecom provider will be asked to pay back the amount of foreign exchange earned from services provided by using infrastructure or network providers based out of India.
In order to facilitate this, each telecom service provider would be asked to segregate its foreign exchange earnings under different heads of services it is providing so that the ministry could fix the correct amount of foreign exchange earned through the scheme or otherwise. Any excess amount would be recovered within a period of six months, added the officials.