Service tax on international in-bound roamers is the subject matter of a recent draft circular from the taxman. "A doubt has arisen regarding the applicability of service tax levy on roaming service provided to an international in-bound roamers, i.e. subscriber of foreign telecom network, when in India, by the Indian telecom service provider," begins the draft proposed by the CBEC (Central Board of Excise and Customs).
CBEC (www.cbec.gov.in) defines `roaming' as "a general term in wireless telecommunications that refers to the extending of connectivity service in a location that is different from the location/network area of home network." Roaming occurs when a subscriber of one wireless service provider uses the facilities of another wireless service provider. In international roaming, the subscriber can move to a service provider's network in a different country.
How is such roaming tracked and accounted for? "To enable an in-bound roamer to hook on to the visited network and avail telephone service, a temporary internal number is assigned by such network," elaborates the draft circular. "Any call made to/from a roaming mobile is routed through the visited network like any other call." Usage details by the subscriber are captured and billing account is transferred to `the home network for receiving the payments'.
Roaming fees are traditionally charged on a per-minute basis, and are governed by the service provider's pricing plan.
Telephone, as you may know, is one of the first services to be brought under the service tax net, in 1994-95, along with stock-broking and general insurance. Service tax law defines telephone connection service as `any service provided to a subscriber by the telegraph authority in relation to a telephone connection'. And subscriber means `a person to whom any service of a telephone connection has been provided by the telegraph authority'.
What happens during international roaming? "The Indian telecom service provider provides telephone service to the international roamer," says the CBEC. "The only difference is that the payment is not directly received from the subscriber but is routed through the home network." Accordingly, the service to in-bound roamers is "delivered and consumed in India". It is not a case of `export of service', opines the board.
"Therefore, the domestic telecom operators providing international roaming service to in-bound roamers are liable to pay service tax on the amount received through the home network on account of service provided to such international roaming subscriber," reads the law-in-the-works.
"In India, there is no DTAA (double taxation avoidance agreement) in the realm of indirect tax or service tax," points out Dr Sanjiv Agarwal, a Jaipur-based chartered accountant and a service tax expert. Such agreements, also known as treaties, exist for income-tax.
What is his view on the proposed interpretation to bring global roaming within the service tax net? "If the Department can do this, days are not far when it will also proceed to levy service tax on international reservations (one-point reservation from anywhere in the world) for five-star or luxury hotels globally, air-travel bookings from abroad and other services provided by Indian service providers to tourists via foreign service providers," cautions Dr Agarwal.
"While this would increase the costs for the inbound tourists, what is important to note is that the tax officials seem to levy service tax based on intelligent interpretation of law, though the same may be subject to judicial scrutiny subsequently," he says.