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INDIA BUSINESS WORLD - 1st April To 15th April - 2009
FOREIGN TELCOS WON’T HAVE TO PAY TAX TWICE, AT&T, BT, VERIZON, C&W & FRANCE TELECOM SET TO BENEFIT
INTERNATIONAL long-distance telecom carriers that offer services in India using the infrastructure of existing operators will no longer need to pay tax twice, with the department of telecom (DoT) deciding to do away with the current system that has drawn criticism from a US government body recently.
The move will benefit international carriers such as AT&T, British Telecom, Verizon, Cable & Wireless and France Telecom, which have recently started carrying long-distance telecom services such as national (STD) and international voice (ISD) and data traffic.
This move will enable the foreign players to compete with established players such as Bharti Airtel, Reliance Communications and BSNL in the domestic market. Besides, it will also help them bag deals from domestic and foreign firms to handle their international business.
At present, foreign carriers use the infrastructure of existing operators, as they don’t have networks spanning the whole of India. Under current rules, they pay licence fees twice to the government—once when they buy bandwidth from the existing operators and again when they resell it to enterprises and their customers.
For instance, if AT&T were to offer national and international connectivity to GE offices in India, the US-based telco needs to buy bandwidth from a domestic operator such as Bharti. This is because Bharti has a robust network covering the entire country. When AT&T buys bandwidth from an existing operator, the 6% revenue share or licence fee is incorporated in the selling price.
But under current laws, AT&T needs to pay tax again when it resells the bandwidth to GE, effectively paying revenue share twice on the same component and making its services uncompetitive. Foreign firms would prefer to buy bandwidth directly from the Indian operator, which is a cheaper option.
DoT officials have held several rounds of talks with foreign carriers to settle the issue. But any announcement on this can be expected only after the general elections, as the model code of conduct is currently in force.
The DoT is looking at two models—application of an excise tax or a valueadded tax—to avoid double taxation. With regard to the excise tax regime, the 6% revenue share applies only to transactions where the service is provided to the end-user. Intermediate or wholesale transactions where the purchaser is another carrier are not counted. Under this system, AT&T will not be subject to revenue share when it buys bandwidth from Bharti. Under a valueadded tax regime, all providers would contribute on the basis of all of their sales; however, each carrier would be able to deduct the value of any telecom services it has purchased.
All foreign players have been demanding that the DoT do away with the double taxation system for the last two years. Recently, US Telecommunications Subcommittee had taken up this issue with the Indian government since American companies such as AT&T and Verizon were impacted by double taxation.
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