Focus on rural telephony, no relief for telcos

Updated: Mar 1 2006, 05:30am hrs
The Budget 2006-07 has come as a disappointment for the telecom industry as its expectations on relief in taxation and licence fee have not been met. On the other hand, since the finance minister has increased the service tax from the current 10% to 12%, the taxation on the sector, which is already high, will further increase a bit.

The industry has, however, welcomed the finance minister's announcement of providing Rs 1,500 crore from the USO fund in 2006-07, which is higher by 25% from the current year. The majority of the USO funds generally go to BSNL, but of late even private companies like Tata Teleservices and Reliance Infocomm have bagged a project to cover six million villages by 2007. This trend may increase in future.

Cellular service providers can now benefit by way of expanding in rural areas. The finance minister has announced that the communications minister will bring in a bill in Parliament amending the Telegraph Act to extend financial support to infrastructure for cellular telephony in rural areas. At present, the Act only provides support to basic services.

Presenting the Budget, finance minister P Chidambaram said telecommunications sector in India is recording one of the fastest growth rates in the world. He said that tele-density stood at 11.75 per hundred at end-January, 2006. The ambitious target is to reach 250 million connections by December, 2007. Chidambaram said more than 50 million rural connections would be rolled out in three years and, thereafter, a connection will be availed on demand. "The digital divide between rural India and urban India will be bridged," the finance minister said.

On the tax front, the industry was in particular looking forward to a reduction in revenue share licence fee to below 6%. At present, the licence fee varies from 10%, 8% and 6% of adjusted gross revenue (AGR) for A, B and C circles, respectively. In fact, communications and IT Minister had also exuded confidence that a reduction in licence fee to below 6% will come about.

Currently, telecom companies are charged as many as seven different levies, which include access deficit charge, spectrum charge, sales tax on service, service tax, education cess, universal service obligation, and revenue share licence fee. In addition, they also have to pay an import duty of 16% on infrastructure and 5% on handsets. The total quantum of taxes paid by the industry ranges from 24-28% of adjusted gross revenue. Furthermore, the industry had also represented for a change in the definition of AGR for purpose of payment of licence fee. The demand was for exclusion of interest and dividend income from investments and revenue earned from sale of handsets to be removed from the purview of AGR.

Since the sector is subjected to both service and sales tax, with the latter varying from state to state in the range of 4% to 20%, the Cellular Operators Association of India (COAI) had asked for rectifying this anomaly of double taxation. Similarly, the Association of Unified Service Providers of India (Auspi) had requested that telecom firms be exempted from the minimum alternate tax (Mat).