The telecom sector in India is overtaxed, by the finance ministry?s own admission. That something will likely be done about it in the Union Budget for 2008-09, preparatory work for which has begun, comes as good news. The signals suggest that the objective would be to reduce the complicated structure of taxation that girdles telecom by merging various taxes and reducing the rates of all that remains. This will not just be a deserved reward for an industry that has broken all performance records and delivered services at unbelievably low costs (in global comparison, and despite the tax burden), it will help the industry achieve the national target of 500 million phones by 2010. Such a tax simplification move will also be a fulfilment of the promise made by the finance minister in a 2004 speech, in which he identified telecom as one of four key sectors?apart from textiles, petroleum and sugar?with a tax structure much too convoluted for anybody?s good. Since then, operators have looked forward to a single levy. As of now, telecom operators in India must pay licence fees and spectrum charges in addition to service tax, with the result that 17-26% of their total revenue goes to state coffers. In other Asian boom economies, the percentage is in single digits. Bringing telecom taxes in line with such benign Asian rates would be a bet on India?s telecom boom continuing and becoming even more robust (upon lower tariffs). The Indian government is expected to rake in a hefty Rs 30,856 crore this fiscal from the telecom sector, a figure that has tripled in four years, and the sector would have to expand sizeably for this revenue level to be maintained. In a sector growing so fast, this is not an unreasonable expectation, though it does appear that the ministry would be willing to let its total telecom pickings decline so long as the sector gets a boost.
For its part, the telecom industry has demanded a uniform license fee of 6%, as compared to the current average rate of 7.8%, and a more refined definition of ?adjusted gross revenue? to ensure the exclusion of other income (from investments, sale of handsets and so on) in the calculation. That the erection of cell towers cease to be slammed with excise levies and Sim card activation does not suffer double taxation are the other addressable items on the telecom industry?s wishlist.
