STD rate cuts may see Rs 75cr service tax erosion this fiscal

Santosh Tiwary

New Delhi, Jan 1: The STD rate cut announced by BSNL will not only affect the revenues of the telecom company, but also the service tax collections of the government.

According to finance ministry officials, although it would be difficult to calculate the exact loss of service tax at present, figures suggest that the loss was likely to be around Rs 75 crore in the current fiscal itself.

State-owned BSNL announced slashing of STD rates by over 60 per cent on December 28. The new STD rates will be effective from January 14.

The BSNL officials, when contacted, said the total size of the STD market was Rs 12,000 crore in a year, that is, Rs 7,000 crore inter-state and Rs 5,000 crore intra-state. This largest ever STD rate cut till now was carried out in retaliation to the 50-per cent cut in mobile-to-mobile STD rates announced by the cellular operators.

BSNL controls around 98 per cent of the total STD market, according
to sources. Union communications minister Pramod Mahajan is confident that BSNL will be able to cover the initial loss in six months time. He expects the volumes to surge by 50-70 per cent.

While implementation of the rate cut is likely to result in a revenue loss of around Rs 1,500 crore to BSNL in the remaining period of this fiscal, it is expecting a revenue loss of Rs 3,000 crore in the next six months. This would translate into a loss of Rs 150 crore in service tax at the rate of 5 per cent. At least, sources said, half of this amount is set to be lost in the remaining months of the current fiscal.

Telecom contributes maximum to the service tax kitty at present. It contributed Rs 1,340 crore service tax out of the total collection of Rs 2,581 crore in 2000-01.

Service tax realisation from telephones has witnessed a major growth since 1994-95, when it was brought under the tax net. From Rs 202.05 crore in 1994-95, its contribution grew to Rs 1,176 crore in 1999-00.