Ravider Takkar, CEO of telecom operator Vodafone Idea, today said the government has been very supportive of his company’s requests for providing some kind of relief for the telecom sector to help it tide over a liquidity crunch.
Earlier this month, the Supreme Court ruled that the revenue share payable to the government by telecom companies is applicable to practically all their revenue, including that from non-licensed activities such as ringtone sales and handset sales.
Coming on the heels of a debilitating price war initiated by new entrant Reliance Jio, the judgement — which has increased telecom sector liabilities by around Rs 90,000 cr at one stroke — threatens to disrupt Vodafone Idea’s ability to continue its daily operations, the company had warned yesterday.
Telecom is one of the most taxed sectors in India, and forks out around 15% of its total revenue as taxes and levies, besides paying tens of thousands of crores for spectrum as well as income taxes. In comparison, companies in other sectors have to pay taxes only on their profit (income tax), while their revenues are not taxed.
The revenue-tax is a relic of an earlier era when spectrum used to be given free of charge. Even as the government discontinued the policy of giving spectrum free of charge, it has not withdrawn the tax on revenue — forcing telecom players to pay twice for the same asset.
These companies have, therefore, raised several requests and demands from the government, including not to press for the payments granted by the Supreme Court, not levy Spectrum Usage Charges on non-licensed revenue, reduction of license fee and spectrum usage rates, allow the use of GST credit for payment of Government levies and grant a moratorium of two years for the payment of spectrum dues beyond April 01, 2020 up to March 31, 2022.
Takkar said government officials seemed to be cognizant of the gravity of the situation and the possibility that the number of private players in the market — which fell from 6 to 3 in the last three years — could fall further.
“In our engagements — and we’ve done engagements all the way from several ministries, many many ministry secretaries, as well as various parts of the government — and I’ve to say that the response of the government has been very very consistent,” Thakkar said.
“Everybody has said the same thing. What they’ve all said is that they want the sector to be a healthy sector, it is a very strategic sector, it is too important for the country, it is too important for the digital India vision. So clearly, this is something that is very important for them.
“Secondly, they have said to us that they want to see three private players and one public player in the market. They have emphasized that consistently.
“The other thing that they recognize is that there is stress in this sector, which has, of course, increased because of this AGR ruling, and some of it — a large part of it — has been caused due to predatory pricing,” he added.
On the other side, new entrant Reliance Jio has opposed any move to provide financial support to players like Vodafone Idea — which is teetering on the brink of collapse. Jio has reassured the government that consumers’ interest will not harmed even if the two players — Vodafone Idea and Bharti Airtel — shut down as there will still be public sector players to provide competition and choice.
“The failure of the two operators, even in the unlikely event of it actually happening, will not have any impact on the sector dynamics with the existence of vibrant competition including the presence of PSUs and there is no restriction on entry of new operators,” Jio said in a letter to the government last week.
However, the condition of the public sector units is even worse than that of Vodafone Idea and Bharti Airtel, as they have been making losses for several years in a row and do not have offerings that are competitive with that of private players like Jio.
The two players — BSNL and MTNL — are currently on life-support and kept alive by a government support package.