The government has been planning to reduce licence fees of telecom companies from 8% to 5%-6% as a second major step to revive the struggling industry. The telecom industry is facing high debt along with intense competition; as a result, the revenue and profitability have been struggling.
Furthermore to the licence fee reduction, the Universal Service Obligation Fund (USOF) component could be cut to 3% or 4% from 5%. Similarly, the pure licence fee component could be cut down to 2% from 3%.
It is speculated that a meeting would be conducted shortly to discuss and finalise the reduction of licence fees. The reduction supposedly saves the three telecom companies about Rs.4,000-5,000 crore annually. That is Bharti Airtel will save around Rs.2,000 crore, Jio around Rs.1,500 crore, and Vodafone Idea around Rs.800 crore in the upcoming fiscal year starting in April 2020. Upon arriving at a decision, it will be sent to the Cabinet for approval.
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Industry experts expressed that a licence fee cut may give some relief. However, it won’t help in staving off the issues on the balance sheet as in the case of Vodafone India and Bharti Airtel. These two telecom companies have statutory dues of Rs.53,000 crore and Rs.35,500 crore respectively. This was a consequence of the Supreme Court order to cover the adjusted gross revenue (AGR).
The government cannot modify the Supreme Court order regarding the AGR dues. The licence fee cut will be pursued following the recommendation of the Committee of Secretaries (CoS). The CoS also allowed a two-year moratorium on spectrum payments. The moratorium of giving an Rs.42,000 crore cash flow relief to the private telecom companies was approved by the Cabinet.
Currently, the Indian telecom industry has been among the highest taxed in the world, i.e. about 30% of the earnings will be going to the government.
For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in
