The Hindu : National : Rationalise taxes, reduce fee: telecom operators

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Tuesday, Jun 30, 2009
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Rationalise taxes, reduce fee: telecom operators

Sandeep Joshi

New Delhi: Further reduction in telecom tariffs and ensuring that benefits of information technology percolate down to rural areas were the twin objectives enunciated by Communications and Information Technology Minister A. Raja.

Now as Union Finance Minister Pranab Mukherjee prepares to table the budget in Parliament, the ‘common man’ would be looking for incentives that Mr. Mukherjee might dole out to the telecom and IT sectors, the major drivers of growth, that would help achieve goals as spelt out by Mr. Raja.

To begin with, rationalisation of taxes and levies which telecom operators pay to the Centre and State governments and reduction in licence fee are what the industry and people would be looking at as it would help in further reduction of telecom tariffs, despite the fact that India’s call rates are one of the cheapest globally.

“The government should rationalise multiple taxes and duties levied on the telecom sector to help reduce the cost of services. Taxes, including annual licence fees, usage charges for spectrum, microwave access, and service tax, add up to almost 30 per cent of the operators’ adjusted gross revenue,” said Cellular Operators’ Association of India (COAI) director-general T.V. Ramachandran.

However, it would be a very difficult task for Mr. Mukherjee keeping in mind the current fiscal health of the government, where more funds are needed to boost growth and development and to execute social sector projects. The COAI has also sought tax break extensions for the telecom industry, on a par with other infrastructure sectors, to aid further expansion of affordable services. Currently, a telecom operator is entitled to a 100 per cent tax break for 5 years, followed by a 30-per cent relief on profit for the next 5 years during the initial 15 years when commercial operations start.

The telecom industry has also demanded doing away with the current rule that requires subscribers to quote PAN at the time of acquiring a mobile connection, as many rural subscribers do not have PAN.

3G services

Another crucial issue that would certainly find a mention in budget speech is that of 3G services. Though the government is yet to finalise reserve price for 3G spectrum and other related issues, the government hopes to garner huge revenues (over Rs.35,000 crore) from the auction of radio waves to fund its infrastructure and flagship projects. Therefore, a higher rate of 3G spectrum could lead to costlier advanced mobile services.

However, the industry feels the government could give real fillip to the telecom sector by concentrating on two things — utilising over Rs.15,000 crore worth of Universal Service Obligation Fund lying unused to boost telecom infrastructure in rural areas and by giving push to real manufacturing and not assembling.

“These two initiatives will help the economy in a big way as India is the world’s fastest growing mobile market with over one-crore subscribers being added every month, while the mobile penetration is still about 30 per cent and majority of rural areas are still lying untapped,” said Romal Shetty, who heads the telecom division of consultancy firm KPMG in India.

The government has also announced plans to connect six lakh villages with broadband network in three years to take the information technology and telecom revolution to the hinterland.

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