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Telcos may get tax breaks on shared infra
August, 08th 2007
Telecom operators, who for years have been demanding a reduction in the heavy levies, may finally be granted some relief.

In an attempt to improve telecom penetration in rural India and also encourage telcos to share their towers and other related infrastructure, the department of telecom (DoT) is considering a proposal to give operators tax breaks on income earned from sharing towers and other related infrastructure.

Currently, telcos pay certain percentage of their total levies (also known as aggregate gross revenues - AGR) towards access deficit charge, licence fee, spectrum charge, service tax and universal obligation fund. The proposal involves allowing telcos to deduct income from shared infrastructure and paying sectoral levies only on the remaining amount.

At the same time, sources also emphasised said that this plan was only at a nascent stage and further consultations with both the industry and the finance ministry would be required before it could be taken forward.

A possible reason why the move is being considered is because India must triple its infrastructure to maintain the current growth trends. To put this in perspective, the Telecom Regulatory Authority of India in a recent report has estimated that the country needs around 3,30,000 telecom towers by 2010 from the present 1,10,000 to touch the projected 500 million subscriber base.

Put simply, India needs to build two times the cellular infrastructure it has created over the last 12 years within the next 36 months. This also implies the country needs massive investments in infrastructure, be it passive, active or backhaul.

According to Cellular Operators Association of India (COAI), the body representing all GSM players, the proposal, if implemented will act as a very big incentive for service providers to share infrastructure and enable faster spread of affordable service to far-flung areas in the country.

The industry has been pushing for the move because if their income from shared infrastructure is exempted from the AGR, it would create a level playing field with stand-alone infrastructure players (tower companies) that are currently not subject to any licence fee from the government.

In April this year, the telecom regulator had recommended that all service providers be allowed to share active and passive infrastructure including backhaul. At the same time, the regulator had also recommended that operators who share towers in rural India be granted subsidies from the Universal Service Obligation Fund (USOF) by the government.

Besides, in its latest consultation paper on review of licence terms the regulator has also proposed that operators be given discount in the payment of licence fee and spectrum charge to incentivise their rural roll-out.
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