Vodafone hit by 'excessive' taxes on Indian business

Vodafone is warning that it may review its India business if it is not able to resolve outstanding regulatory issues with the Indian authorities

An ongoing dispute over the calculation of license fees has impacted the latest half yearly results of the FTSE 100 listed company which were released, forcing Vodafone to issue a warning that an Indian court ruling affecting the whole telecoms market in India would affect the way license and regulatory fees were calculated and taxed.  

Loss for the financial period of €1.9bn (£1.63bn) primarily reflects losses in relation to the Group’s Indian subsidiary, Vodafone Idea Limited, after an adverse judgment against the industry by the Supreme Court in India.

In October, the Supreme Court in India issued a ruling affecting the whole telecoms industry in a dispute over the calculation of license fees and other regulatory fees, which included the interpretation of adjusted gross revenue (AGR).

As a result, Vodafone Idea Limited is now liable for very substantial demands made by the Department of Telecommunications in relation to these fees [Union of India v Association of Unified Telecom Service Providers of India]. The equity accounted results for the period included an estimate for a material charge for amounts due following the recent Supreme Court ruling but Vodafone Ideal Ltd is ‘ seeking relief from the Indian government, including, but not limited to, granting a waiver of interest and penalties relating to the AGR judgement’. The Group's potential exposure under this mechanism is capped at INR 84bn (€1.1bn).

In its half year report, Vodafone said: ‘We are actively engaging with the government to seek financial relief for Vodafone Idea. Given the ruling our guidance now excludes recharges from India (a drag of c.€0.1bn on free cash flow) and Indus Towers dividends (a drag of c.€0.15bn on free cash flow).’

The Indian regulatory environment and tax regime is putting pressure on the group.

‘It’s a very critical situation,’ Vodafone Group CEO Nick Read said. ‘Financially there’s been a heavy burden through unsupportive regulation, excessive taxes and on top of that the negative Supreme Court decision.’


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