Budget 2020 depicts the finance minister’s desperate attempt to balance and contain fiscal deficit while attempting to generate adequate revenue amidst the dwindling business scenario. While rural upliftment, infrastructure development and digitalisation at large has been the focus in the policy initiatives of the government, the telecom industry, which plays a pivotal role in paving the way to facilitate economic development and growth, has once again been left in the lurch.

Burdened with enormous AGR demands, which are threatening the very survival of the industry players, the sector had pinned high hopes on the Budget for a roadmap for revival of the industry and provision of requisite respite and relief to the cash-starved industry. The budget, however, has not addressed the concerns of the industry.

Though the renewed focus of the government on promoting the manufacture of mobile phones locally in India, as enshrined in the policy announcements, would provide impetus to a particular segment of the telecom industry ecosystem, this move alone may not be sufficient. While one may also see incidental positives in some of the direct tax proposals such as introduction of taxpayer’s charter in the legislation to remove hardship and harassment, faceless appellate proceedings, introduction of a dispute settlement scheme in the form of ‘Vivad Se Vishwas Scheme’, reduction of withholding tax rate on fee for technical services to 2 percent (as against existing rate of 10 percent), critical demands of the industry remain unanswered. From an indirect tax perspective, the positive is reassurance on digital issuance of refunds to exporters without any human interface, which is already implemented.

Ever-increasing losses

Neither the policy announcements nor the tax proposals provide any succour to the telecom companies, which is reeling under the financial burden of AGR demands, protracted tax litigation, blockage of tax refunds resulting in unfavourable cash flow position and ever-increasing losses. In fact, the proposal requiring payment of 20 percent of the tax demand for a stay on demand by the tax tribunals, would result in further cash being blocked in litigation.

On an overall basis, it may not be incorrect to say that the budget has failed to deliver on the expectations of the industry and provide much required financial relief.

The budget announcements have yet again left the sector, which is one of the essential and critical sectors of the economy, high and dry.

Vishal Malhotra is Tax Leader – Telecom and Rohit Verma is Director – Tax and Regulatory Services at EY India.

First Published:Feb 2, 2020 4:40 PM IST