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Run-up to the Budget: Hoping for incentives
February, 16th 2010

The telecom sector, probably the only sector that remained unaffected by the recent global economic slowdown, is hoping for some incentives from Union Finance Minister Pranab Mukherjee in his budget proposals for 2010-11.

Apart from its long-standing demand of relaxation of the severe tax regime, telecom players are eyeing some announcements that will give the much-needed push to the telecom equipment manufacturing segment and m-commerce.

The telecom sector, particularly the mobile industry, has been demanding rationalisation of the tax structure. The industry, which pays both Central and State-level taxes, has been seeking a unified tax rate. It shells out almost 30 per cent of its revenues, making the industry the highest tax-paying one.

Most affected are mobile operators. They have seen their profits come down in the past couple of years due to fierce competition, resulting in Indians enjoying the cheapest telecom tariffs globally.

Besides the license fee that is paid to the government, a mobile operator contributes towards the Centre-monitored Universal Service Obligation (USO) Fund meant for the growth of rural telephony. The fund has remained under-utilised, leaving private operators livid.

There is also excise duty, service tax and other cess. Telecom operators say that on the one hand, the government considers them part of the infrastructure sector, but on the other, they pay taxes on a par with the luxury sector.

Industry players want an end to this disparity and the telecom sector accorded status as given to other industries in the infrastructure sector.

Telecom players also want tax holiday benefits granted to new entrants who have started providing service after March 31, 2005. Pointing out that this could hinder the rapid growth of the sector which is now adding almost 1.5 crore subscribers every month operators say that the cut-off date for new operators should be extended to the end of current financial year (March 31, 2010) and income-tax exemptions being given to old operators extended from the current 15 years to 20 years.

To maintain its profitability, the industry is also going to see major mergers and acquisitions within the country. But the absence of a clear-cut policy and the complex tax structure created obstacles in the path of this much-awaited consolidation, which the industry leaders say the government needs to address urgently.

Similarly, m-commerce is an area the government needs to focus on through regulatory framework to facilitate business and day-to-day transactions, besides helping rural people become a part of it.

The telecom manufacturing industry, meanwhile, is looking forward to some incentives and the availability of cheap and easy credit, besides some lowering of taxes and boost to exports.

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