Telcos should pay taxes on their profits as normal companies do, apart from bearing a small levy to pay for regulation.
The government’s reported relief package for the stressed telecom sector is welcome. It includes a four-year moratorium on adjusted gross revenues (AGR) and spectrum payments, lowering the spectrum usage charge (SUC) and redefining AGR to exclude, prospectively, non-telecom revenues besides allowing telcos to surrender unused spectrum. The government could also convert a part of the debt owed to it by telcos into equity, as suggested by Deutsche Bank. The most impactful relief would be if the government were to organise a sale and leaseback of the spectrum the telcos hold. It could put together a pool of capital that buys the spectrum from the telcos and leases it back for short periods for a share of the telcos’ revenue. The telcos would free up their capital/relieved of debt for spectrum payment to the government.
The sector is saddled with debt of over ₹8 lakh crore. A relief on the debt servicing obligation will ease cash flows for troubledVodafone-IdeaNSE -2.42 % and enable the company to survive, leaving at least three private players in telecom. Of the total ₹1.9 lakh crore of debt, Vodafone Idea owes the government nearly ₹1.6 lakh crore towards its AGR and spectrum payments. A deferment of outstanding dues will improve its operational profitability. That the government is open to different forms of financial relief is welcome. The same relief could be offered to all the telcos without discrimination. Lowering the SUC is logical and fair. The SUC is a relic from an era when spectrum was allotted, bundled with a licence to operate, without any separate upfront payment. After spectrum started being auctioned off for steep prices, the rationale for SUC has disappeared.
Similarly, steep shares of the revenue being collected as licence fees also lost their rationale after spectrum auctions began. A licence has meaning only with spectrum and that has to be obtained separately, paying good money. Telcos should pay taxes on their profits as normal companies do, apart from bearing a small levy to pay for regulation.