The telecom sector in India has seen a revolution in the past decade and has been one of the key drivers in India's progress. It has also immensely contributed in bridging the rural-urban divide. The government's policy announcements on 3G and broadband wireless access (BWA) licenses, focus on deployment of broadband and implementation of mobile number portability (MNP) promise an exciting future for the sector. The right support from the government will act as a catalyst for the next phase of growth.
While the urban areas may be reaching 100% teledensity, the focus now should be on rural India, where almost 70% of the population resides. A rural penetration of just 15% implies significant growth potential. With the new entrants in the sector and competition intensifying, rural India is being seen as the future revenue source. However, requirements for substantial spending on telecom infrastructure in order to achieve wider and deeper coverage and at the same time ensuring services at low and affordable costs would be a significant challenge. Fierce competition among existing and new players has already triggered a tariff war and this is likely to adversely hit the industry in the medium term. The new players would look for a level playing field and rationalization of multifarious levies in order to sustain themselves. Consolidation would also become the need of the hour and removal of impediments would go a long way in ensuring the continuous growth of the sector. In this backdrop, the industry's wish list from the Union Budget 2010 includes:
Reintroduction of tax holiday: With new services on the anvil viz-à-viz 3G, WiMax, etc, along with the expansion of telecom network to the rural sector, the telecom industry is driving for better platforms. Both the existing telecom operators and new entrants are keen to make investments but are reluctant due to long gestation periods. Given the long gestation periods, an extension of tax holiday to 100% of the profits of the undertaking for a period of ten years out of a block of twenty would be a shot in the arm for the industry. The benefit should not only be available to existing the telecom operators, but to new entrants as well in order to give them a level playing field. Tax holiday with particular reference to network rollouts in rural areas would speed up the process significantly. Tax breaks to telecom infrastructure service providers would also immensely help in cutting down costs, and thereby would assist in reaching the rural subscriber faster.
Tax holiday be allowed to undertakings undergoing business restructuring: With a rush of new entrants, there are fourteen to fifteen small and big players in the Indian telecom sector, which is definitely not sustainable in the long term. A consolidation phase would therefore be seen in the near future, which would help the telecom companies to remain asset light, enhance competitiveness, and unlock shareholder value. Denial of tax holiday to all eligible undertakings undergoing bonafide restructuring is clearly harsh. The restrictive provisions introduced in Section 80IA (12A) by the Finance Act, 2007 should thus be deleted so as to enable much needed consolidations in the telecom sector. Additionally, it should also be clarified that the Minimum Alternate Tax (MAT) credit available under Section 115AA of the Act continues to be available in case of merger/acquisition.
Clarification on deduction of tax on inter-company payments made by telecom companies: The telecom sector involves a lot of inter-service transactions between various operators viz-à-viz inter-connect usage charges, use of passive infrastructure, network management services, etc. Clarity on tax withholding obligations on such transactions would not only help in reducing avoidable tax disputes, but would also increase operational efficiency of the telecom service providers.
Restoration of exemption of 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: Being a highly capital intensive sector, the cost of rolling out telecom services viz-à-viz 3G services, broadband services including cellular services in the rural sector is significant. Therefore, in order to provide an impetus to the sector, the exemption under section 10 (23G) of the Act should be restored. Additionally, interest on loans from foreign sources taken for the purpose of meeting capital expenditure including payment for 3G spectrum/license should be exempted from tax under Section 10 (15) (iv) of the Act.
Page(s) 1 2
Print
Comment
Email
Digg
Del.icio.us
Reddit
