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No retrospective service tax on foreign roamers
June, 20th 2007
Domestic telecom operators and the finance ministry have resolved their standoff over the payment of service tax for roaming facilities provided to international tourists visiting India.

A new notification issued by the Central Board of Excise and Customs (CBEC) said operators will not be charged tax for services offered to inbound roaming subscribers from July 1, 1994, to January 14, 2007.

Industry sources said the resolution of the standoff will offer major relief to telecom operators and enable the sector to save a little over Rs 1,000 crore.

The resolution of this issue is a welcome step. The industry is happy with the move as it is rational. This will provide a level playing field with regard to levies, Cellular Operators Association of Indias director general TV Ramachandran said.

Earlier this year, the finance ministry, while announcing that it would collect service tax from telecom operators for services provided to international inbound roaming subscribers from January 15, 2007, had asked them to pay the backlog from July 1994. This came as a blow to operators, who said service tax was not applicable on inbound roaming subscribers since these tourists were not their subscribers and no payment was directly collected from them.

This led to a standoff, with the finance ministry finally referring the issue of backlog payment to CBEC. Operators have been forking out the 12% service tax on roaming services provided to international tourists visiting India since January 15 as the finance ministry has refused to entertain any demands on this issue.

Justifying its stand, the finance ministry said: International practice treats the telephone service provided to an inbound roamer by the visited network, for purposes of taxation, in the same manner as a telephone service provided to any home subscriber.

Industry sources estimate all operators combined will earn about Rs 3,000 crore this fiscal from international roaming subscribers. Bharti Airtel and Hutch Essar account for bulk of the revenues, sources added. This implies the Centre will earn over Rs 300 crore as service tax.

CBEC said the exemption was granted based on the prevalent practice during this period when service tax was not imposed on inbound roaming subscribers.
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