Telcos won’t have to pay VAT on spectrum trades: Arun Jaitley

New Delhi: Finance minister Arun Jaitley on Monday clarified that trading of telecom spectrum would not be treated as sale of intangible goods and telecom operators will only have to pay service tax.

“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 during his budget speech.

Telecom industry lobby group Cellular Operators Association of India (COAI) had sought clarity on the issue as part of its budget recommendations.

The move means that telecom firms trading in spectrum will only pay service tax, and not come under the ambit of the value added tax (VAT) regime. A company paying service tax gets a benefit in its tax liability, which is ultimately credited back.

“The FM clarified that the transfer of spectrum is a service and not transfer of intangible asset which means that service tax would be applicable on transfer of spectrum. We believe that CENVAT (central value added tax) credit would be available on such service tax payment and therefore is tax neutral for assessee. This clarification has bought in clarity and would avoid litigations,” said Hemant Joshi, partner, Deloitte Haskins and Sells.

Currently, the applicable rate of service tax is 14.5%, while the applicable rate of VAT varies between 5% and 15%, depending on the state.