The stagnancy in service tax payment by the country’s top mobile firms in the first five months of the fiscal is worrying the government. The reason being that while in the last two quarters profitability of the major operators have dipped and revenue grown in single digits the average talk-time of the consumers has started showing an upward trend.
Since service tax is levied on the consumers’ bill an increase in talk-time known as minutes of usage in technical parlance the tax component should have increased. However, at Rs 2,300 crore it was almost flat compared to the same period of the last fiscal.
In an interview, revenue secretary Sunil Mitra expressed his concern. “Telecom earnings are growing but my revenues (service tax) from the sector is not growing. Telecom is one sector we are certainly concerned about. We are certainly looking at revenues from this sector,” Mitra said.
During the April-June quarter minutes of usage of the country’s three leading mobile operators, Bharti Airtel, Vodafone-Essar and Idea Cellular grew on a sequential basis by 3%, 10% and 13% respectively.
The telecom industry’s service tax payments dipped 16% in the last financial year to Rs 5,700 crore from Rs 6,800 crore in 2008-09. However, this drop was could be attributed to the 2% service tax cut given by the government as part of the stimulus package.
Analysts said that one of the reasons for the non-buoyancy in the service tax despite the increase in minutes of usage could be the declining tariffs. However, since January this year there has not been any major tariff cut by any operator.
Pratik Jain of KPMG said, “One of the reasons for this could be that the new players in the field are using service tax to adjust a large amount of capital expense Cenvat credit. So, effectively they would not be paying any service tax but use the credit of infrastructure investments for the service tax.”
The telecom sector’s bottom-line shrank during the last financial year while this year the first quarter has started seeing the first signs of improvement.
Overall, service tax collections during April-August stood at Rs 22,632 crore, an increase of 20% compared to the corresponding period of the last year.
Indirect tax collections, that had taken a hit due to the stimulus package give by government last year, has recovered now with the total indirect tax collections in the first five months growing 46%.
