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    Non-core revenue to arrive at AGR to calculate licence fee: Trai

    Synopsis

    Trai also proposed lowering of Universal Services Obligation (USO) levy to 3% from 5% on AGR, starting April 1, 2015.

    ET Bureau
    NEW DELHI: India's telecom regulator has suggested revenue from non-core sources such as rent, profit on sale of fixed assets, dividend, interest and miscellaneous income should be excluded to arrive at the adjusted gross revenue (AGR) required for calculating licence fee and spectrum usage charges.

    The Telecom Regulatory Authority of India (Trai), on Tuesday, also proposed lowering of Universal Services Obligation (USO) levy to 3% from 5% on AGR, starting April 1, 2015, which will reduce the uniform rate of licence fee to 6% from the current 8%. “The 3% of licence fee that directly accrues currently to the government will not change,” the regulator said.

    It also proposed that the telecom department (DoT) should set up a system of deducting licence fee at source from April 1, 2015, and an eportal for submitting licence fee and spectrum usage charges (SUC) by April 1, 2016, and sought a quick transition to the new system. The recommendations, if accepted by the telecom department, are set to benefit the telecom industry, say analysts, which has been suggesting to the government that revenue directly arising out of rendering telecom services should comprise AGR.

    “The (proposed) reduction of licence fee to 6% is a bright move for the industry, which would mean a lesser revenue outgo,” said Jaideep Ghosh, partner at KPMG India, who tracks the telecom sector in the country.

    “The move to reduce USO levy to 3% is also a positive, because at present the base on which 3% will be calculated is higher than the base initially, when the USO was created, on which 5% was levied,” he added.

    Image article boday

    Trai has suggested revenue from all sources including rent, profit on sale of fixed assets, dividend, interest and miscellaneous income should be included in gross revenue. Separately, revenue coming from non-telecom operations, activities under a licence by Ministry of Information and Broadcasting, receipts from USO Fund, income from dividend, interest, gain on profit of sale of fixed assets, forex, bad debt, property rent and insurance claims, should be deducted from gross revenue to come to what it called Applicable Gross Revenue (ApGR), a new concept that the government should introduce, Trai proposed.

    Finally, pass through charges should be deducted from ApGR to finally arrive at the AGR, to compute licence fee and the fees for using airwaves.
    The definition of AGR has been a contentious issue since 2003, with operators arguing that the definition given in the licence agreement was very broad and covers non-core revenue. However, the telecom department says it should include all revenue earned by a service provider, including from corporate receipts, sale of handsets, real estate transactions and interest earned from bank deposits.

    The issue around the definition of AGR is going on in the Supreme Court, the Telecom Disputes Settlement and Appellate Tribunal and various high courts.

    “The telecom companies have increased their scope of activities in the recent past, thereby earning income which is not related to telecom activities and also earn certain other income from investment. They are currently paying licence fees on these income also,” said Hemant Joshi, Partner, Deloitte Haskins & Sells.

    He added that recommendations would help in reducing the licence fee and spectrum charges outgo of telecom companies. Licence fee and SUC are levies imposed on telecom operators for permission to offer voice and data services.

    The government levies 8% licence fee on an operator’s AGR while an SUC of 5% is charged on airwaves bought through auction. A weighted average mechanism is used to calculate the SUC for companies who have some spectrum bought through auctions and some which were allotted without auctions.

    “The authority has taken note of disputes or litigations between licensor and licensees on definition of gross revenue and adjusted gross revenue under licences granted by DoT for different telecom services,” Trai said, hinting at large amounts of time and money spent on litigations.

    “National Telecom Policy 2012 portrayed the need to rationalize taxes, duties and levies impacting the Indian telecom sector,” it added. Tuesday’s recommendations will go to the Telecom Commission, the highest decision making body in the DoT, which will take a final call.

    India’s telecom regulator had sought comments from industry stakeholders on the definitions of gross revenue and AGR in July 2014.

    Trai added that internet service providers (ISPs) having AGR less than Rs 5 crore a year shall pay licence fee of Rs 10 lakh or actual licence fee based on the applicable rate, whichever is less. IP-I services or telecom tower providers may not be brought under the licensing regime, the regulator added.



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