Government suspects under-reporting of revenues by telcos; orders strict auditing

In a report submitted by the Comptroller and Auditor General (CAG) June last year, the national auditor had argued that telecom companies under-report revenues through accounting adjustments for commission or discount paid by the companies to their distributors.

Telecom towers 4g servces reliance airtel competition reliance jio iartel tata telecom india 3g — Telecom firms will appeal for relaxation in special audits of their accounts as ordered by the government in March this year. (Representational Image)Reuters file

The telecom sector which is facing losses for a long time is expected to come under the government scanner on the suspicion of under-reporting of revenues. The Times of India has reported that the central government has ordered a comprehensive audit of their financial filings.

The government gains revenue from the telecom sector as a percentage of their adjusted gross revenues (AGR) and it feels that the companies are cooking their financial books in order to escape tax liabilities. The companies which are under the lens include Bharti Airtel, Vodafone and Idea Cellular, Tata Tele and new entrant Reliance Jio.

The sources told, "Six auditors are expected to be appointed by the first week of January, and we are hopeful of completing the exercise over the next nine-month period."

In a report submitted by the Comptroller and Auditor General (CAG) June last year, the national auditor had argued that telecom companies under-report revenues through accounting adjustments for commission or discount paid by the companies to their distributors, promotional schemes like free talk-time and discounts to post-paid subscribers and on roaming services.

The CAG further added that the companies understated the earnings by netting of revenue from infrastructure sharing and non-inclusion of forex gains, interest income, and sale of the investment. The telecom ministry is expected to issue notices to these companies on the audit process.

According to the telecom policy, mobile operators pay a percentage of their AGR with the government as annual license fee which at current levels is 8 percent. Additionally, the telecom service providers (TSPs) are also liable to pay Spectrum Usage Charges (SUC) to the government for the use of radio frequency spectrum.

As per the agreement with the Department of Telecom (DoT) the gross revenue of the licensee operator prohibits any set-offs of related expenditure from revenue and norms for the preparation of the accounts.

The telecom industry is witnessing consolidation post Reliance Jio disrupted the entire market by offering free voice service and data at very low prices.