Sunday 23 January 2022
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Vodafone-Idea may shut shop in tax-freak India

In the beleaguered telecom sector, Vodafone, in particular, was saddled by bad luck as it fought one hostile tax regime in India after another

Finalising the tough decision it had made tentatively in November 2019, Vodafone-Idea may decide to shut its operations in the country following the rebuke by Supreme Court yesterday, ordering telecom companies to pay up their due adjusted gross revenue (AGR) by the midnight of 14 February that is already gone. After suffering heavy losses every month, it has become more difficult for Vodafone-Idea to run its operations; the company may decide today to shut shop in India.

All eyes are now on the board meeting of the company. The company will decide what other options it has to pay the amount due to the Department of Telecommunication, Government of India. In December 2019, Voda-Idea chairman Kumar Mangalam Birla had said if the government did not provide financial support, the company would shut down.

Sirf News had reported last year how the industry was dying due to a hostile environment created by the tax regime of the country. In a country where jobs shrunk in the sluggish, inefficient, corrupt government sector since the liberalisation of the 1990s, the collapse of an industry run by the private sector will spell doom for employment.

Vodafone, in particular, had hit a bad patch under the UPA government when the then Finance Minister Pranab Mukherjee had imposed tax dues on the company with a retrospective effect. It meant that a company that had entered India under a set of stated conditions was given a fresh set of conditions for its operations in the country that far. The BJP-led NDA government tried to make Vodafone work around the rule made by its predecessor but did not remove it altogether.

Vodafone-Idea now owes Rs 53,000 crore of AGR (adjusted gross revenue). The company incurred a total loss of Rs 6,439 crore during the third quarter: October-December 2019. This is the sixth consecutive quarter when the company has incurred losses.

After today’s news, which marks a failure of foreign direct investment in India, the company’s stock has fallen by more than 20%.

Vivek Mittal, head of research, VM Portfolio, says Vodafone-Idea has no money. This way the company could go to the NCLT, as she has to pay the dues before the next hearing of the case on 17 March. If the case is accepted, under the Bankruptcy Law, there will be a ban on repaying the dues and the company may not have to pay. But then, it would mean the company would no longer exist either.

In the AGR case, the Supreme Court has denied any relief to the telecom companies. The court has taken a tough stand against these companies. On 16 January, a bench of Justice Arun Mishra ordered the telecom companies to repay the AGR to the government.

The Supreme Court on Friday reprimanded the telecom companies for not paying up the arrears of Rs 1.47 lakh crore to the government and summoned the top officials of all these companies to tell them that the apex court’s order to clear the dues was complied with Why has not been done. The court reprimanded these companies and asked them to deposit Rs 1.47 lakh crore by the end of Friday, 14 February.

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