Indian court’s ruling may increase operators’ tax burden

Indian court’s ruling may increase operators’ tax burden

A recent Indian Supreme Court licence fee ruling could mean that some of the country's operators will be hit with large retrospective tax demands.

According to the Economic Times news service, although no operator has so far confirmed such plans, the three big names, Reliance Jio, Vodafone Idea and Bharti Airtel, are expected to file a review petition against the Supreme Court's ruling to treat licence fees as a capital expenditure.

This decision could potentially prompt authorities to raise hefty retrospective demands, including penalties on operators for tax payment shortfalls of past periods.

This new ruling apparently overturns a 2013 decision from the Delhi High Court that categorised licence fees before and after July 31 1999 as capital expense and revenue expense, respectively.

As TeleGeography's CommsUpdate explains, revenue expenditure is deductible when calculating income tax whereas capex is not. Thus the ruling could require Vodafone Idea and Bharti Airtel to pay more than two decades of back taxes. 

Reliance Jio, a late entrant, would pay less, but still a significant amount, as much as Rs 8,400-crore (US$1.009 billion) for the 2017-2023 period, according to one analyst, which doesn’t bide well for companes in the market for a longer period. Penalties for underpayment in the past could make the sum even higher. However, it has also been suggested that previous losses could partially offset the backdated fees.

This is all in the future, however. For now, to quote the Economic Times: “Legal experts expect India's top telcos to file a review petition – and, if required, a curative petition [where a supreme court can reconsider a dismissed review petition] – against the latest Supreme Court ruling.”

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