Bharti Airtel, Reliance Jio may face tax demands worth over ₹14000 cr: Kotak

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₹14,000 crore due to the Supreme Court’s recent decision on licence fee categorisation, according to analysts. The judgment stipulated the treatment of the licence fee as capital, a departure from its previous classification as an expenditure. While the judgment implies a heightened tax liability, the real impact may be mitigated by factors like depreciation and amortisation spanning the 20-year licence tenure, brokerage firms noted.

It is anticipated that telecom companies might look at legal recourse. “Assuming a tax rate on a license fee of 8% (of adjusted gross revenue or AGR), the potential impact on cash flows would be ~2% of revenues (equivalent to ~4% of EBITDA) on a gross basis in the near term, which would be offset by higher depreciation and amortisation charges in future years, limiting the net impact to a much lower number. Companies with past accumulated losses would have an option to offset some of this near-term impact as well.

Hence, believe the impact appears quite manageable," said analysts at Morgan Stanley in a report. India’s telecom sector reported gross revenues of about ₹3.1 trillion in the financial year ended March 2023. Analysts at Kotak Institutional Equities estimated that excluding penalties Reliance Jio could potentially face tax demand of ₹8,400 crore, while Bharti Airtel could face potential tax demand of ₹6000 crore for 2020-23.