22 July 2017

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CAG Report 6 Telecom companies under-reported revenues by over Rs. 61,000 crore

CAG Report 6 Telecom companies under-reported revenues by over Rs. 61,000 crore

Six leading private telecom players understated their revenues by over ₹61,000 crore, depriving the exchequer of ₹7,697.62 crore, the Comptroller and Auditor General of India said in a report tabled in Parliament on Friday.

The CAG has also questioned the Department of Telecom (DoT) for failing to take any “proactive steps to ensure that the licencees disclosed their revenue as stipulated in the licence agreements.

As per the CAG, the telecom players suppressed revenues through accounting adjustments for commissions or discounts paid to distributors, promotional schemes like free talk-time, as well as discounts for users of post-paid and roaming services.

The exchequer was also shortchanged by understating revenue by simply excluding forex gains, interest income, sale of investment, miscellaneous revenue and profit on sale of fixed assets and dividend income from their reported aggregated gross revenue, as per the CAG. The telecom operators share a percentage of their aggregated gross revenue with the government as annual LF.

The auditor has pointed out that the gross revenue of the licencee operator, as per the licence agreement with the telecom department, prohibits any set-offs of related expenditure from revenue. “We observed non-conformities with conditions of licence agreement in the accounts prepared by all the six operators covered in audit due to which their gross revenues computed for sharing revenue with the Government was understated,”

It further said that even though computation of the gross revenues was not in compliance with the licence agreement, the statutory auditors had always certified that the accounts were prepared in accordance with the guidelines/norms contained in the Licence Agreement.

the CAG has said that this proves that although the revenue share regime was introduced as part of the National Telecom Policy-1999, the department has not been able to realize its due revenue share as envisaged in the licence agreement even after over 17 years of its implementation.

“It would be pertinent to mention here that when the Government decided to reduce the LF for all operators by two per cent effective from April 2004, DoT expected that the reduction would prompt operators to withdraw the challenges against the Government,” the CAG said.

However, the reduction did not have the expected impact and the operators continue to institute litigations against the Government challenging the definition of GR/AGR and demand notes.

“Thus, the private service providers got the benefit of reduction in rate of LF but the Government didn’t get the reciprocal benefit of reduction in litigations,” the CAG said.

This revenue loss occurred over the five-year period from 2010-11 to 2014-15 for five telcos –
 1-Bharti Airtel
As per the CAG, the shortfall in licence fee (LF) and Spectrum Usage Charges (SUC) payments owing to the understatement of adjusted gross revenues by telecom players stood at ₹2,602.24 crore for the country’s largest telecom player Bharti Airtel.

2-Vodafone - Rs. 2,152.95 crore for Vodafone

3- Idea Cellular – Rs. 1,136.29 crore for Idea

4-Reliance Communication - Rs. 1,072.68 crore for Reliance Communications

5- Aircel – Rs. 670.85 crore for Aircel

6-SSTL the findings are for the 2006-07 to 2014-15 period - 62.61 crore for SSTL

The auditor has calculated that the interest dues on the revenue shortfall from telcos add up to ₹1245.91 crore for Bharti Airtel, ₹1178.84 crore for Vodafone, ₹657.88 crore for Idea, ₹839.09 crore for Reliance Communications, ₹555.80 crore for Aircel and ₹54.10 crore for SSTL.

In March 2016, the CAG had indicated a loss of ₹12,489 crore to the exchequer due to understatement of revenues by six telecom operators for the four-year period from 2006-07 to 2009-10. That report is currently under the consideration of the Public Accounts Committee.

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Tags – Telecom Revenue Loss India