Airtel's Master Plan to Save Taxes
An explainer on why Airtel is going for corporate restructuring. Read on.
Bharti Airtel has announced a corporate restructuring1 plan. While companies keep restructuring themselves, Airtel's reason for doing this is damn interesting!
Airtel is one of the few companies that has survived the wrath of Jio.
Like Jio, Airtel is also into multiple lines of businesses, especially in the digital domain:
The company currently holds these "assets" in different companies (subsidiaries). Some are clubbed with the telecom business. The new structure will hold all digital assets together, and have telecom business as a subsidiary:
But, what's the problem with the old one? All was going smooth in the old one too, right?
Naah! You see, there was this one Supreme Court ruling that made lives hell for telecom companies. They were made to pay up additional "AGR" dues to the government of approx Rs. 43,980 crores.
One sec. What's this "AGR dues”?
AGR = Adjusted Gross Revenue.
You see, telecom companies buy rights to operate their telecom business from the government (spectrum). Along with spectrum charges, the companies have to pay a percentage of revenue every year to the government. This is called “AGR tax.”
The problem lies in how the government defines this. The government says, "all revenue," and not just telecom revenue, will come under the definition of AGR.
You see how this is unfair, right?
Yet, because the government was technically correct (and for more masala-reasons, that deserves a piece of its own), the Supreme Court gave the decision in its favour.
To right this wrong, Airtel is now pooling in all of its digital businesses into one company and is moving the telecom one in another.
This way, when the government will calculate the AGR dues, it will only be for telecom revenues. Nothing else.
Airtel will be able to save a lot of money it doesn't really have. But, is this the only benefit it’s getting out of the rejig?
Nope.
Here are a few others:
It can now raise funds (if it wants to) separately for its digital businesses, just like Jio did.
Having all digital assets under one umbrella will help them focus and grow better (internal process related efficiencies).
With this corporate restructuring, Airtel is now AGR-tax efficient. But, can you guess which company's structure did it copy for this? :)
Hahaa. Have a good day ahead :)
What is corporate restructuring?
Say there's a company with assets A and B. Now, the company can either hold A and B together in its own name, or create a child company, which it controls, and transfer B to that company. Or vice versa. It's basically moving assets here and there to achieve some purpose (like better management or saving costs).
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