Increase CENVAT Credit
Telecom service providers lay cables and install capital equipment such as
BTS, cables, RSUs, and boosters across the country for expansion of services.
This requires a huge amount of capex. Due to high capital investments, there is
high amount of CENVAT accumulation. As per the Rule 6(3)(c) of the CENVAT
credit, the provider of output services shall utilize only to an extent not
exceeding 20% of the amount of service tax payable on output service. After the
introduction of the new definition of telecommunication service effective from
January 06, 2007, the entire gamut of services provided by telecom operators has
been covered under the service tax net, barring few which have been specifically
exempted under notifications issued by the Ministry of Finance. Moreover,
inclusion of Interconnect Usage Charges in the service tax net has begun to
contribute high accumulation of CENVAT credit.
Despite the scuffle going on between the service provider
associations (read COAI and AUSPI), when it comes to CENVAT credit, they start
singing the same tune. Both the associations, in their recommendations, have
asked the finance minister to increase the CENVAT credit limit from the existing
20%. "The denial of input tax credits, through capping of credits to 20%,
is conceptually wrong and contrary to the basic design principles of the service
tax," says TV Ramachandran, director general, COAI. AUSPI has even
recommended a minimum credit limit of 35%. In the present scenario, when TRAI is
trying to motivate the industry to expand in rural areas and has recommended
subsidies to private operators setting up network in rural areas, such
restrictions on CENVAT credits is uncalled for, particularly when this industry
is generating huge revenues for the central government.
Tax on Renting of Immovable Property
The Union Budget of 2007-08 has extended the levy of service tax to renting
of immovable property for use in commerce and business. Both COAI and AUSPI
present the argument that stamp duty is already payable at the time of entering
the agreement. This was an uncalled move, and tax will be an additional burden
for telecom service providers. "This levy will act as a burden and have a
cascading effect on costs, resulting in inflationary pressures in the economy.
This will, thus, increase the cost of service for the end-user," says
Ramachandran.
Exemption for BTS/Towers
There are several laws that create conflict. A case in point is BTS Cell
Sites. A debate continues on whether the BTS Cell Sites are good or not.
Associations want a clarification, which will insure the relaxation on payment
of excise duty. BTS Cell Sites are put-up for providing telecommunication
services at various locations in the country. Despite the issue of a circular in
this regard and various judgments that BTS Cell Sites are not excisable, field
formations continue to issue Show Cause notices to telecom operators, resulting
in wastage of valuable time, manpower and money of both the department and
telecom operators.
Custom Duty
India offers the lowest call tariffs in the world and yet the telecom
industry has to carry a heavy tax burden. One of the major components of tax
comes in the form of custom duty. Telecom companies have created a lot of hue
and cry in the past for the reduction or, in some cases, exemption of duties on
certain products. The demand for further reduction has made its presence in this
year budget recommendation also.
The customs duty rates for telecom equipment range from 4-37%,
with the highest rate applicable on transducers, spares for telecom equipment,
increasing the cost of the equipment in terms of cash outflow. It is suggested
to bring all the items required for a telecom project, including spares under
the zero percent basic duty categories to reduce the capital cost, which can
translate into better tariffs for the customer. AUSPI has also sought the
removal of the IT duty of 4%, as, according to them, it has increased the burden
on the capital equipment cost. TEMA is also seeking zero duty on the inputs
required for telecom manufacturing.
Bigger Broadband
When the Broadband Policy came into existence, it was stated by the Ministry
of Communications & IT that DoT would work out a package in consultation
with the Ministry of Finance and related departments for reduction in fiscal
levies/taxes and duties, the incidence of which results in increased costs to
the end customer. The total effective duty comes to around 21.65%, adding CVD
(16%), Education Cess (2%) and Special Additional Duty (4%).
The whole industry is united on the broadband issue. "This
levy is making the data card more costly and restricting the masses' Internet
use. This high levy is a burden and has a destructive effect on the cost of
Internet/broadband service for the end-user, thus adversely impacting
connectivity, especially in semi-urban and rural areas," says Ramachandran.
"The government should exempt service tax on broadband
services for the next five years in lieu of the low broadband penetration of
0.16%," says Perhar. "We foresee increasing usage of wireless data
cards to access the Internet all across the country. Lower duty, which shall
translate into lower prices, would enhance usage and take up of this
service," says Ramchandran. However, ISPAI has made some demands that sound
unrealistic. "Amount incurred for buying a computer/laptop by employee
(government or private) should be exempted from income tax on producing valid
bills," says Perhar.
ISPAI is also demanding an annual payment of Rs 6,000 by the
public/private companies to their employees for using broadband, which it seems
to be an over ambition on ISPAI's part.
Promote Brand India
Manufacturing is one of the key areas of focus by all associations. Almost
every trade association has sought a strong policy on promoting the 'Made in
India' tag. In its recommendations, TEMA has requested the creation of an
ecosystem where telcos are given incentives to adopt Indian manufactured
products in their network. To achieve this objective, an offset of service tax
by a percentage of money spent on purchase of domestically manufactured telecom
equipment, used by the service provider, can be a good incentive and simple to
administer.
"Locally produced goods bear the burden of paying taxes and
excise duties on the end customer realizable value, while imported goods attract
taxes and levies on the import price, three-forth of the end customer
price," says Malik. "These handicaps need to be mitigated if Indian
manufacturing has to be supported and promoted," he further adds. TEMA goes
a step ahead and even recommends that large amount of aid be given to Nepal,
Mauritius, and Ivory Coast, and if we could also institute a system that give,
under such programs, preferred treatment to products manufactured in India.
AUSPI has appreciated the efforts made by the government in this direction.
"Service providers sourcing indigenously manufactured telecom equipment
have now been allowed to set-off against the service tax payable on services.
This is a welcome move and would also 'incentivise' service providers to
source indigenous equipment in a fiercely competitive global equipment
market," says Khanna.
There is nothing new in these demands and most of them sound
familiar. The only difference is the telecom industry's stunning growth
witnessed in recent times. It will be hard to overlook the contribution made by
this industry to the nation's economy and the Finance Minister must think
seriously on the issues. Though there are few recommendations which seem to be
just a page filler, there is ample scope for reforms. We will have to wait and
watch until the doomsday.
Kumar Anshuman
anshumank@cybermedia.co.in
Page(s) 1 2
