The tax structure in the telecom sector is set for a massive overhaul as the finance ministry has proposed that multiple duties be merged into a maximum of three levies over the next few years before moving on to a single-tax regime in 5-10 years' time.

At present, telecom companies are charged as many as eight different levies, which include access deficit charge, revenue share licence fee, spectrum charge, sales tax on services, service tax, education cess and universal service obligation. Besides, they also pay an import duty of 16 per cent on infrastructure and 5 per cent on handsets.

The finance ministry has said that a "reduction in the absolute amount of these duties and levies shall allow telecom service providers to plough back profits into networks and services."

The move to reduce the number of tax slabs is aimed at addressing the "convoluted tax structure in the telecom sector", the proposal said adding that the government must adopt "a time-bound phasing out of these different taxes till they are merged into three or two levies".

A reduction in tax slabs can lead to turf wars between different government agencies that collect levies, and also between the Centre and states.

The Telecom Regulatory Authority of India has calculated that the number of levies now on the sector is 21 per cent of the adjusted gross revenue of telecom companies — amongst the highest in the world. As a result, customers pay at least 30 per cent of their actual phone bills as taxes.

The finance ministry has also said that telecom service providers favour the move and that they have suggested a hike in service tax from the present 10 per cent to include all levies and duties.

The telecom firms have also suggested that the sum collected through the hike be shared by recipients like USO, ADC, the department of telecommunications and the ministry of finance.

But the finance ministry has said that a single service tax is not possible under the present system. This is because a part of service tax collection is shared with states.

The ministry also wants the Centre to take steps to address the issue of sales tax, which is related to states. "Given the fact that this is tantamount to double-taxation, the central government needs to step in and arrive at an amicable solution," the ministry has said.

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