An internal report by DoT calls for rationalization of levies to be among the top priorities for the communications ministry. The department is also set to approach the finance ministry for a reduction or even an exception on the 10.3% service tax that consumers are charged on their mobile and landline bills.
According to both government and industry estimates, Indian telcos pay about 31% of their total revenues towards different forms of taxes, which is among the highest in the world, against the global average of 17%. Any reduction in levies will be a boost for the ultra competitive 14-player telecoms market that has been fighting stagnant revenues and plunging profits over the last 18 months due to the savage price war. According to DoT officials, the first step towards lower levies will be a reduction in the licence fee, which could be implemented from January 2012.
Sector regulator TRAI in May 2010 had suggested that the licence fee be reduced gradually over the next four years to 6%. The regulator stated that the move would allow the industry to save about US$1.43 billion, while adding that Bharti Airtel would see savings to the tune of US$444.14 million, while for Vodafone, the reduced licence fee would give it a benefit of US$308.63 million.
At present, mobile phone companies share between 6-10% of their revenues with the government – the licence fee is highest at 10% for the metros and category A regions, which include lucrative states such as Tamil Nadu, Andhra Pradesh and Maharashtra among others.
TRAI’s proposal involved reduction of licence fee in metros from 10% currently to 9% in 2011-12, 8% in the year after, then 7% and finally at 6% in 2013-14.
In category â€˜A’ circles, where operators are currently paid 10%, TRAI had suggested that this be reduced by 1% every year to be at 6% by 2014.