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Wrong Number: Taxmen on trail of telcos to find missing revenues
November, 05th 2007
The telecom sectors growth story has not translated into increased tax revenues for the government. Service tax collections have declined 45% to Rs 1,190.61 crore in the first half of the fiscal year, even as service providers added 44 million new users during the period. As a result, the sector is under the scanner of the tax department.

The overall service tax collections (all sectors combined) grew by about 35% during the period under review. However, tax officials are concerned as collections from the financial services sector and the telecom sector form the major chunk of the service tax kitty, and a massive decline in collections from the telecom sector could have repercussions on overall service tax collections as well.

All telcos pay a little over 12% of their aggregate gross revenues (AGR) as service tax. The subscribers base of all companies combined has increased by about 24% during this period from a total of about 166 million cellular users at the end of March to about 210 million at the end of September. The tax department is analysing why the growth in the sector is not reflected in tax collections. The Director General of Service Tax has asked field units to undertake special audits of the sector.

Although the telcos have been adding about 7 million users every month, AGR reported by them has been coming down. While AGR of all operators combined for the second quarter of this fiscal is not available, the figure for the first quarter was Rs 22,945 crore. Total AGR was about Rs 23,196 crore in the last quarter of the previous fiscal year.

Sources said increased Cenvat credit by telecom companies on account of large capital expenditure may have contributed to the decline. The tax department is likely to examine this in detail. Cenvat credit allows companies to take credit for the duty paid on inputs, which means it can offset its tax liability using the credit. The tax department is likely to check if Cenvat claims by these companies were actually made for permitted capital goods. The department is also likely to scrutinise pre-paid card schemes.

The capital expenditure by the telecom companies are increasing and stands at about Rs 70,000 crore for this fiscal. Bharti Airtel and Reliance Communications have announced capex of Rs 15,000 crore each, while BSNL and Vodafone are estimated to spend over Rs 10,000 crore, and Idea Cellular and Tata Teleservices about Rs 6,000 crore each to expand their networks during this fiscal.
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