The tax structure in the telecom sector is set for a massive overhaul as the finance ministry has proposed that multiple duties be merged into a maximum of three levies over the next few years before moving on to a single-tax regime in 5-10 years’ time.

At present, telecom companies are charged as many as eight different levies, which include access deficit charge (ADC), revenue share licence fee, spectrum charge, sales tax on services, service tax, education cess and universal service obligation (USO). Besides, they also pay an import duty of 16% on infrastructure and 5% on handsets.

The Telecom Regulatory Authority of India has calculated that the number of levies now on the sector is 21% of the adjusted gross revenue of telecom companies - amongst the highest in the world. As a result, customers pay at least 30% of their actual phone bills as taxes.

The finance ministry has also said that telecom service providers favour the move and that they have suggested a hike in service tax from the present 10% to include all levies and duties.

But the finance ministry has said that a single service tax is not possible under the present system. This is because a part of service tax collection is shared with states. The ministry also wants the Centre to take steps to address the issue of sales tax, which is related to states.

“Given the fact that this is tantamount to double-taxation, the central government needs to step in and arrive at an amicable solution,” the ministry has said.

Source: Business Standard