Telecom News-inf. by ashok Hindocha (M-9426201999)

Telecom industry looks up to Budget '09 to accelerate it's growth
www.bsnlnewsbyashokhindocha.blogspot.com


The fast track growth of the Indian telecom industry has made it a key contributor to India's progress. India is making a big mark as a growing economic power and has at present, one of the fastest growing teledensity in the world. The dynamism of the sector though, is far from over.

The Government's policy announcements for 3G and Broadband Wireless Access (BWA) licenses focus on deployment of broadband, phased implementation of Mobile Number Portability (MNP) and the likely introduction of Mobile Virtual Network Operators (MVNO) promise to further stir things up.

However, with low ARPU (Average Revenue Per User) and tariffs, reduction in levies is required to sustain this growth. The telecom sector is plagued by multifarious taxes and levies like license fee, spectrum charges, service tax, entry tax, octroi, stamp duty, apart from corporate income tax, and rationalizing them has become essential in order to give impetus to the expansion of the telecommunication network in the country.

The industry expectations from this budget include:

Extension of tax holiday under section 80IA of the Income tax Act, 1961 (Act) - Given the long gestation period and huge capital costs (including upfront spectrum fee) involved in establishing 3G and broadband networks, for effective roll out of tax holiday under section 80 IA should be extended to provision of 3G and broadband services considering them to be separate and distinct undertakings. Similarly, tax holiday should also be extended to tower companies to facilitate a faster roll out of passive infrastructure which is critical for network expansion by the telecom operators.

Retention of tax holiday by telecom undertaking that are transferred by amalgamations and de-mergers - The Finance Act 2007 brought in an amendment in Section 80IA of the Act by withdrawing tax holiday for undertakings that are transferred under a scheme of amalgamation/ de-merger. This has significantly affected genuine re-organization of telecom operations of the telecom operators and is also impacting consolidation in telecom sector. It is suggested that suitable provisions may be brought in to plug any perceived 'anti abuse' as against complete denial of benefit to an undertaking, which is transferred under a business reorganization.

Exemption on dividend income/interest/capital gain - Restoration of exemption of dividend income, interest on long term finance and long term capital gains arising to the investing companies/infrastructure capital funds for the investments in telecom service companies under section 10(23G) of the Act. This would enable telecom undertaking to raise long term funds at a more reasonable cost in the present high interest rate regime.

Clarification on tax deductibility of lump sum spectrum charge - No separate license is required by the existing operators for 3G services. To avoid any disputes as regards tax deductibility of this charge, it should be explicitly allowed to be amortized evenly over the license period under section 35ABB of the Act.

SAD should either be exempted or made creditable - The network equipment imported into India is generally liable to customs duty comprising in addition to Basic Customs Duty, Countervailing Duty in lieu of Excise, which is creditable and Special Additional Duty ('SAD'), which is a non-creditable duty for the telecom service provider. SAD should either be exempted or made creditable (against output service tax) for telecom service providers, as this will reduce the capital cost and would help in faster roll out of telecom network.