The Cellular Operators Association of India (COAI) has asked the government not to levy the Swach Bharat Cess (SBC) on telecommunication services as there are numerous other taxes like license applicable on the industry. The GSM industry body in its I budget recommendations has said that with the levy of SBC, effective rate of service tax has further increased to 14.5 per cent and this would increase the overall cost of telecommunication services for the customer.
Earlier the government had imposed SBC at a rate of 0.5 per cent on provision of all taxable services with effect from November 15. It was also made clear that the credit of SBC cannot be availed and the cess cannot be paid by utilizing credit of any other duty or tax.
Regarding direct taxes, COAI said there is some uncertainty on the withholding tax obligation, if any, under section 194J of the Income Tax Act, 1961 on payments made in consideration for spectrum acquired through trading. So
a clarification could be issued saying that the payments made in connection with the trading/sharing of spectrum are not in the nature of royalty and hence do not attract withholding tax obligations. The association said this would facilitate an effective implementation of spectrum trading and mitigate any potential tax dispute arising out of such transactions.
COAI has also sought to amend the definition of the term ‘Royalty’ with retrospective effect to exclude telephony, internet bandwidth and other such services. According to the body, domestic as well as cross-border payments in respect of a wide array of telecom services are under litigation on account of retrospective amendment in the definition of ‘Royalty’ vide Finance Act, 2012.
COAI said it has suggested to the government to clarify that distributors’ margins on sale of SIM cards and prepaid vouchers are not in the nature of ‘commission’ and hence not subject to withholding tax provisions as far as the issue of withholding tax on distributors’ margin on SIM cards and prepaid vouchers is concerned. It also asked the government should issue a clarification that spectrum fees is an intangible asset eligible for depreciation under section 32 of the Act. .