Reliance Jio and Bharti Airtel along with other major telecom operations are going to join hands in an anepic saga where two rivals will come together to file petitions against Supreme Court’s recent ruling.
Following the Supreme Court’s ruling on the “license fee” that telecom operators has to pay, it is anticipated that the industry’s two biggest players, Bharti Airtel and Reliance Jio, could face a massive tax bill of up to Rs 14,400 crore.
According to Kotak Institutional Equities’ estimations, between 2020 and 2023, Bharti Airtel and Reliance Jio may have to pay a staggering ₹14,400 crore in taxes, with ₹6,000 crore going to Bharti Airtel and ₹8,400 crore going to Reliance Jio. It is anticipated that this retrospective tax demand may have a significant effect.
The New Telecom Policy of 1999‘s entry fee and variable annual licensing charge are to be considered capital expenditures and amortized in line with Section 35ABB of the Income Tax Act, the Supreme Court has ruled. It overturns the Delhi High Court’s Dec. 2013 ruling that the yearly license fee is a tax expense.
“The SC ruling hasn’t resolved the issue regarding this provision’s retroactive applicability. According to the report, the brokerage stated, “We think income tax authorities would demand payment for the amount of tax that was not paid for the previous period, together with any related penalties.
Bharti Airtel’s shares closed on the BSE 0.94% higher at ₹954.4 a share on Tuesday.
Reliance Jio surpassed Bharti Airtel in terms of revenue market share, dependency In Q4 FY2023. Jio’s RMS increased to 41.7%, up 13 basis points (bps), while Airtel’s stayed at 36.5%.
Retrospective taxation refers to the imposition of an additional tax or charge by an amendment dated back to a certain period of time.
THE BACKGROUND
The National Telecom Policy, which the government announced in 1994, outlined a number of significant goals, such as making telephones available on demand, offering top-notch services at competitive costs, guaranteeing India’s emergence as a major hub for the manufacture and export of telecom equipment, and providing basic telecom services to every village.
Additionally, a number of precise goals were declared to be accomplished by 1997. In contrast to the NTP 1994 goal of having 1 PCO per 500 urban residents and covering every 6 lac village, the DoT has only been able to deliver telephone coverage to 3.1 lac villages while achieving an urban PCO penetration of 1 PCO every 522.
In terms of the total number of phone lines available in the nation, the Department of Transportation has installed 8.73 million, compared to the 7.5 million target set for the eighth plan.
The government acknowledges that the privatization process hasn’t produced totally satisfactory results thus far. Although cellular mobile networks have been quickly deployed in states and metro areas, with over a million users as of right now, the majority of these projects are now having issues. The cellular and basic operators claim that the primary cause is that the actual income from these projects have fallen well short of the projected amounts, making it impossible for the operators to secure funding and finish their projects.
THE NEW POLICY
The main goal of the new policy framework must be to establish an atmosphere that encourages investment in the industry and permits the expansion of communication infrastructure by utilizing advances in technology. In order to do this, the New Policy Framework would examine the telecom service industry in the following ways:
- Access Providers are Fixed Service Providers,
- Cable Service Providers, and Cellular Mobile Service Providers combined,
- Suppliers of Radio Paging Services.
- Providers of Public Mobile Radio Trunking Services.
- Long-distance National Operators.
- Long-distance international operators.
- Additional Service Suppliers.
- Service Providers of Global Mobile Personal Communication via Satellite (GMPCS).
- Service providers with a V-SAT platform.
It is important to note that the Supreme Court’s ruling does not make it clear if the accounting structure modifications must be done retroactively. The Kotak research states that the income tax authorities will likely demand payment for the tax payment gap from the previous period as well as any related penalties.
Telecom businesses may file a review petition, delaying the actual tax due. Bharti Airtel provided a stock exchange update on Tuesday, stating that the company was reviewing the order and its implications and would determine the next line of action at the appropriate time.
