'Service tax on spectrum allotment to hurt telecom industry'

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 today.
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.
Trai has said that the method suggested by it will give
only approximate revenue and it is only a temporary solution.
The regulator reiterated that "all possible steps should be considered by the DoT to move to a simple, transparent and flat ad valorem SUC regime in accordance with law."
The Trai had recommended SUC at a uniform rate of 3 per cent across the industry and gradually bringing it down to 1 per cent of revenues from telecom services.

The SUC has been a highly contentious issues of late with the industry. Reliance Jio has opposed levying of uniform SUC rates, as suggested by Trai, as it pays only 1 per cent on its spectrum in 2300 Mhz band (broadband wireless access).
Finance Minister Arun Jaitley had said that the Telecom Commission took the opinion of Attorney General on SUC after recommendation of Trai was received and hence there was need to consult the regulator again before a final call was taken.
The regulator said that DoT has never sought the opinion or recommendation of Trai on this matter in the past nor has there been any consultation on it.

"While the optimal solution in the view of the Authority is to move to a flat rate regime, we are constrained to limit ourselves to examine the weighted average solution as suggested by Ld. AG (Attorney General) and proposed by DoT," Trai said.
Before 2010, there was only 2G spectrum and hence the calculation of revenue was easy. But the process became complex after new frequencies were allocated to companies for services like 3G and 4G.