Vodafone’s Indian operation hit with £5.4bn tax bill

Telecom giant Vodafone’s Indian operations are in jeopardy following a court ruling requiring the company to immediately pay billions in unpaid tax and interest

This follows an Indian Supreme Court ruling on the definition to be used for adjusted gross revenue (AGR) calculations.

Mobile telephone operators in the country are required to share a percentage of their adjusted gross revenue with the government as part of their license agreements with the Indian Department of Telecommunications but the way in which this is calculated has been the subject of a protracted dispute.

The Department of Telecommunications (DoT) argued that adjusted gross revenue should include all revenues (before discounts) from both telecom and non-telecom services, but the companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on sale of any investment or fixed assets.

In 2015, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruled in favour of telecom companies, stating that adjusted gross revenue included all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income.

However, late last year the Supreme Court upheld the definition of adjusted gross revenue as stipulated by the Department of Telecommunications, and this week the court ordered the telecoms operators to pay £10bn in back tax to the government by a 17 March deadline.

Vodafone Idea, a joint venture between UK-based Vodafone Group plc and India's Idea Cellular, is required to pay £5.4bn.

In an initial regulatory update earlier this week, Vodafone Idea stated: ‘As disclosed in the company's financial statements for quarter ending December 31, 2019, the company's ability to continue as a going concern is essentially dependent on a positive outcome of the application for modification of the supplementary order.’

Vodafone Idea has now put out a second update, stating it has reviewed its ability to pay immediate demands for adjusted gross revenue dues and is to make a down payment equivalent to £377m.

‘Based on the overall review of the position, the board has authorised the company to immediately pay to DoT a portion of the dues calculated based on AGR aggregating to a sum of Rs 2,500 crores today and a further Rs 1,000 crores before the end of the week,’ Vodafone Idea said.

‘The board will take further stock of the situation to see how further additional payments can be made.

‘An urgent oral application made this morning before the Supreme Court for directions to be issued to the DoT to not take any coercive steps for recovery of AGR dues was not entertained by the Court.’

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