Hoping for a Miracle

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Growth in the economy is fuelled by industrial expansion that takes place across the country with the support of investments in any sector. The telecom industry, which has ploughed in more than Rs 87,000 crore and is targeting 500 mn users by 2010, is no exception.

Telecom players, who are in the process of investing heavily in networks to spread wings in India and abroad, are gearing up to face one more budget by the UPA government. Though the budget 2006-07 did not offer any significant breather to India's telecom equipment manufacturing companies and service providers, this time they are hopeful that a miracle could happen in February, when finance minister, P Chidambaram, presents his budget.

The number of recommendations for the forthcoming budget has gone up since Union governments in the past have shown their keenness to improve tax mobilization. The industry feels that growth in teledensity can be further improved if the government brings down the burden on operators, as operators are willing to pass on the benefits to consumers and offer affordable tariffs in rural India.

The License Fee Gripe
Both GSM and CDMA operators are in the same boat when they approach the government to reduce levies. Representing the GSM players, the Cellular Operators Association of India (COAI) and the Association of Unified Telecom Service Providers of India (AUSPI), the flag bearer of CDMA operators, have urged the government to reduce the revenue share license fee from 6-10% to 6% as is applicable in the case of NLD/ILD license. In the coming years, this 6% can also be slashed since the government exchequer will not bleed because of increase in revenues of the telecom segment, according to COAI.

According to SC Khanna, secretary general, AUSPI, "It is a well-accepted fact that telecommunications is one of the important engines of economic growth that fuels activity and trade in all sectors from manufacturing to the provision of financial services. Apart from the direct economic benefits, telecom is also quite well established as a powerful catalyst of social, educational and other cultural activities; thus, enhancing overall quality of life in a society."

Levies and Taxes
Both industry associations are also united in suggesting removal of multiple levies that hamper telecom growth, and replace with a uniform levy. "All multiple levies on the sector, which act as a bottleneck and stifle growth, should be removed," says TV Ramachandran, director general, COAI.

One of the key tax proposals by COAI is to exempt telecom software being imported by service providers from 8% CVD as COAI feels that the telecom software is equipment specific and has to be configured in equipment, and it cannot be treated as packaged or "canned software".

"All multiple levies on the sector, which act as a bottleneck and stifle growth, should be removed. We should have in place a simple, industry-friendly and investor-friendly tax structure that can be implemented in a transparent manner,"
-TV Ramachandran, director general, COAI

Both CDMA and COAI want the government to clearly define the "business premises areas" in order to avail CENVAT credit. At present, CENVAT credit is not available on cable laid across the country, and assets like BTS, cables, RSUs and boosters across the telecom circle, while CENVAT credit is available only on capital goods installed within the premises of the company.

Tax holiday for ISPs under section 80 IA for the next five years and 100% exemption from customs duty on goods imported by ISPs for the purpose of providing broadband access are the other main recommendations by the ISPAI.

The Telecom Equipment Manufacturing Association (TEMA), in its proposal, has asked the government to reduce excise duty on all electronic and telecom equipment to 8% from 16%.

Reduction of customs duty on all capital goods used for telecom equipment manufacturing, telecom shelter, power conditioners, sheet metal and PCM machines and associated services to zero percent is also one of the major recommendations of TEMA.