New Delhi: Providing clarity on spectrum trading deals, Finance Minister Arun Jaitley Monday said right to use spectrum and its subsequent transfer is a service which will attract service tax.
Experts feel that the move may result in increased financial burden for telecom operators, even as the same may reduce future litigation.
GSM industry body COAI said the move might result in higher costs for the consumer.
"I propose to amend the Finance Act, 1994 so as to declare assignment by the Government of the right to use the radio-frequency spectrum and its subsequent transfers a service, to make it clear that assignment of right to use the spectrum is a service leviable to service tax and not sale of intangible goods," Jaitley said in his Budget 2016-17 speech.
Deloitte Haskins & Sells Partner Hemant Joshi said the finance minister clarified that the transfer of spectrum is service and not transfer of intangible asset which means that service tax would be applicable on transfer of spectrum.
"As the input costs for the main input of spectrum gets costlier, it is inevitable that some or all of it will get passed on to the customer, thus leading to higher costs to the consumer," COAI Director General Rajan S Mathews told PTI.
Joshi said it is believed that CENVAT credit would be available on such service tax payment and therefore is tax neutral for assesse.
"This clarification has bought in clarity and would avoid litigations," Joshi added.
Anita Rastogi, Partner - Indirect Tax, PwC India said it will definitely hit the industry from a cash flow perspective.
"Further, the ultimate impact on consumer would have been higher in case the levy was VAT as the industry would not have got credits being a service provider," Rastogi said.
Prashant Singhal, Global Telecommunications Leader at EY said while clarification introduced in taxation of spectrum fee and applicability of BCD may result in increased financial burden for the ailing telcos, the same may reduce future litigation.