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Rise in tax rate under GST to increase cost of telecom service
January, 31st 2015

The GSM industry body has warned that any increase in rate of indirect tax from current 12% service tax to a higher rate under Goods & Services Tax (GST) would increase the cost of telecom service, which is an essential service for common man.

In its pre-budget recommendations to Finance Ministry, the Cellular Operators Association of India (COAI) Friday said that a consultation process with trade and industry bodies should be initiated for GST, and a platform for such consultation should be formed. "Since place of supply rules for telecom services are distinct in almost all the overseas jurisdictions, India would also need distinct place of supply rules for telecom services under the GST regime," it said in a statement.

COAI has also proposed that the telecom goods manufactured in Special Economic Zones should be exempted from basic customs duty. It said that such an exemption would lower the cost of telecom network while at the same time, supporting the 'Digital India' project.

In last year's budget, exemption from payment of customs duty was withdrawn on import of specified telecom products without mentioning the specific name or description of the products. The body has requested that the specific names of these products should be stated, without which classification of goods have become ambiguous.

The industry body has also asked the government to reduce the rate of interest on delayed payment of service tax, which was increased to 30% in last budget. In last budget, the time limit for claiming Cenvat credit was stipulated as six months from the date of issue of invoice. COAI has suggested that the stipulation be changed to six months from the date of issue of invoice or six months from the date of payment of invoice.

The body has also suggested that the government introduces new provisions or amends the existing provisions of the Finance Act, 2012 to clarify the methodology to be adopted for withholding taxes on discount offered to distributors by telecom companies.

"Telecom companies sell SIM cards and prepaid vouchers to independent distributors at a discount, who further sell to retailers or subscribers. Telecom companies do not withhold tax on discount offered to distributors, basis an argument that discount is not in the nature of commission as Distributors are not agents of Telecom companies. However, Revenue authorities have adopted a contrary position that tax withholding is required on margins earned by Distributors," the body explained.

The body has also raised its concerns over taxability of interconnect usage charges, saying that the judiciary in India has unequivocally held that these are standard services and hence, fee for same cannot be taxed as royalty under Indian tax laws. However, Finance Act, 2012, retrospectively amended the definition of 'royalty' to include transmission by satellite, cable, optic fibre, or similar technology.

"To protect the interests of Indian telecom industry and avoid increase in the cost of telecom services for Indian consumers, definition of the term 'royalty' should be reinstated with retrospective effect," it suggested.

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