Honestly, I was not confused with the term"pass through", but after reading your post, I am a little confused. In simple words, do you mean to say that the tax will be on gross revenue, net of taxes (practically, as their are no relevant deductions)??
There are relevant deductions, but such deductions do not include what is a fundamental cost of running the
business. That would be like only paying tax on your income after accommodation, food, utilities etc. That's why tax is deducted at the source, before you even get the chance to spend it on all of these things (yes, I'm aware you can get tax credits on your mortgage and savings schemes and so forth but it's not the same thing as while it does lower your overall tax rate, it doesn't put you on a lower tier or anything like that).
Your post seemed to be implying that AGR was calculated as a more-or-less net figure (=income - expenses) which is not the case - AGR is, however, defined in the ISP license as income after service/sales tax, roaming revenue
I do not understand your second part of argument. Do you mean to say, companies will incur losses just to avoid 8% losses??
Yes, basically. The idea is to reduce liabilities as much as possible.
Companies pay 30% tax on their profit.
If a company doesn't make a profit, guess how much tax it pays?
Why do you think so many large companies - not just in India - have operations in low-tax jurisdictions and pass off their incomes as being *in* those places to avoid paying so much tax in high-tax jurisdictions? Or why group companies (which most Telecoms are or are part of) often have LAQCs (loss attributed qualifying company) in order to basically sink money in to so as to apparently reduce the profit (on paper) of the really profitable parts of the group?
Some call it avoidance. Some call it evasion. Others all it efficient tax planning. But you do need to stop calling the license fee a tax, as the license fee is not paid to the IT department.
Also, just to give an analogy, telecom companies pay 8% fee on AGR which is computed as gross revenue - termination charges paid. Termination charges paid are also fundamental cost of business for Telecom companies.
I can't find mention of termination charges being deductible in any of the license agreements. Care to point me in the right direction?
Profit is derived by subtracting many other costs incurred for the business, such as manpower cost, SG&A, subscriber acquisition cost, maintenance cost etc. and hence AGR is called AGR and not profit.
I'm aware of that, however the claim is that 90% of costs of doing business are deductible from the overall license fee liability, which causes one to wonder whether they can tell the difference or not.