What Telecom Sector Can Expect From Upcoming Budget

The country's telecom sector is in a state of high competition thanks to ever-growing demand and robust subscriber addition. While aggressive pricing of high speed data by some players has left no option for the others but to join hands, intense competition and debt are among some of the common problems for many players in the sector. With the government due to present Interim Budget 2019 in Parliament on February 1, many analysts eye the key annual event for announcements related to the telecom sector. 

Here are three key expectations listed out by industry body Ficci from the upcoming Budget:

1. TDS (tax deducted at source) on prepaid distributor margins/discounts from telecom operators

It is a practice in the telecom industry to enter into an arrangement with the prepaid distributors on a "principal to principal" basis such that all material is supplied at a discount to the MRP and the distributor can, in turn, sell at any price up to the MSP (max selling price) of the product. The risk of any losses is not borne by the telecom operator but by the distributor. There has been continuous litigation on whether the relationship between the telecom companies and distributors is on a "principal to principal" or "principal to agent" basis. TDS is applicable only if the relationship is of a principal to agent basis.

It is strongly believed that issuance of a clarification that such discounts do not fall within the ambit of TDS provisions is warranted. Alternatively, it is suggested that the government should introduce the TDS rate of 1 per cent on such payments, which would be closer to the actual tax liability of distributors as margins earned by the distributors are low and they sustain only on volumes.

2. Introduction of a scheme for allowing self-declaration by a deductor for lower rate TDS

For obtaining certificate for lower deduction of tax at source, every year a taxpayer has to incur a lot of cost and efforts and the certificates are based on estimations only. Also, where are there are additional transactions entered or the limit specified in the certificate exhausts during the year, a fresh application has to be filed and entire proceedings are undertaken. To provide convenience to tax payers and to reduce costs and efforts of both taxpayers and tax authorities, the government should introduce a scheme wherein the deductee may furnish a self-declaration to the deductor for lower rate of TDS.

3. Treatment of interest expenditure incurred on acquisition of spectrum

There is no clarity on the treatment of interest expenditure incurred on acquisition of spectrum. While the government has clarified the treatment of spectrum as amortisable under Section 35ABA of the Act read with Rule 6A of the Rules over the validity of period, the treatment of interest expenditure incurred prior to the date of put to use is not clear. Under the block concept, spectrum was treated as an intangible asset and hence interest cost incurred prior to the date of put to use was also capitalised in view of Section 32 read with section 36(1)(iii) of the Act. Spectrum is now covered by the provision of Section 35ABA of the Act which allows amortisation of spectrum on payment basis and there is no clarity on treatment of interest under the current regime.

It is therefore recommended that an appropriate clarification should be issued to provide that the interest expenditure incurred towards right to use spectrum, is allowable as revenue expenditure under section 36(1)(iii) read with Section 37(1) of the Act.