Dial T for telco tax: Supreme Court rings in tweaks
additional tax liabilities of about $1 billion on the telecom sector this fiscal year alone, impacting operator cash flows, the Supreme Court on Monday held that licence fees payable by the telcos will be treated as entirely «capital in nature».
It set aside a Delhi HC order that categorised licence fees before and after July 31, 1999, differently, as capital expense and revenue expense, respectively.
Rejecting this recharacterisation, a top court bench comprising Justices B V Nagarathna and Ujjal Bhuyan said the licence fees remain capital regardless of instalment payments after the New Telecom Policy 1999 came into effect.
Big setback for older telcos
The order is a setback for older telecom companies Bharti Airtel and Vodafone Idea, and, to a lesser extent, even for Reliance Jio, as they will need to reassess their financial structures and potentially face increased tax liabilities.
«Variable licence fees will be treated as a capital expenditure and, as a corollary, the deduction will not be allowed in the year of the expenditure now,» said taxation lawyer Abhishek A Rastogi, founder of Rastogi Chambers.
«This means that higher income will be subject to tax in the year of the expenditure, thereby leading to higher tax-to-net-profit ratio.»
Experts said the tax implications would be on calculations since 1999.
Peeyush Vaish, partner and TMT industry leader at Deloitte India, said back-of-the-envelope calculations suggest that in the immediate term, the top telcos could collectively face around a $1 billion, or about Rs 8,000 crore, of additional tax liabilities, given that the sector's adjusted gross revenue (AGR) in FY24 is estimated at Rs 3 lakh crore which, in turn, would peg the sectoral licence fee payout
