India Changes Telco Tax Laws To Help Carriers Avoid Hitting The Wall

India has re-written some of its telecommunications laws to make foreign investment easier and reduce enormous retrospective tax bills that threatened to send some carriers to the wall.

The key structural reform outlined yesterday by the government of India involves changes to a tax on carriers' Adjusted Gross Revenue (AGR) that offered carriers the chance to share some revenue with New Delhi rather than pay fees for operating licences. Mobile carriers, however, were taxed on revenue for services such as spectrum usage fees charged to peers, which they felt was unfair as the AGR had previously been applied to revenue for core telecoms services. Disputes over the legality of the tax spent almost a decade in the courts, and when a decision finally went the government's way it included non-core revenue and left carriers owing $22 billion in back taxes .

Most of those liabilities fell on older carriers Vodafone Idea and Bharti Airtel, which have fought the law vigorously. Vodafone Idea has even found it hard to find investors to recapitalise its operations, due to its AGR debts.

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The government has now acceded to carriers' wishes by removing non-core revenue from the definition of AGR and allowing a four-year moratorium on payments. The government has also reduced the bank guarantees telcos are required to have in place to secure AGR and licence payments by 80 per cent. Bank guarantees are effectively a liability, so reducing them makes India's telcos a better investment target.

According to the government's announcement, the reforms are "expected to boost 4G proliferation, infuse liquidity and create an enabling environment for investment in 5G networks" and help telcos as they will "provide relief by easing liquidity and cash flow.

"This will also help various banks having substantial exposure to the Telecom sector,” the announcement concludes.

The reforms will also help the storage, scanning and document management industries, as another change allows carriers to move from paper Customer Acquisition Forms to digital records. The government announcement estimates Indian carriers currently store between three and four billion such paper records. ®