Sales tax may no longer be levied on telecom

New Delhi, Nov 15 | Updated: Nov 16 2005, 05:30am hrs
The draft new telecom policy 2005 has suggested doing away with sales tax on telecom services on the grounds that no sale of goods takes place.

Pointing out that different states have different sales tax policies and rates, the draft says, This has caused confusion and has resulted in disputes and litigation. It goes on to say, With a view to promote growth and make services more affordable, state governments will be requested not to levy sales tax on telecom services.

It also looks to offer other tax sops like exemption from revenue-sharing for rural telephony, reduction in duties on end-user devices (PCs), and deductions on gross income by way of interest rather than net income for lenders to telecom projects.

As per the draft, such deductions would be allowed under Section 10(23)(G) of Income Tax Act 1961, at least for the first five years of the telecom project. The draft says that this will offer lenders incentives to finance telecom projects at lower rates of interest.

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It also looks to offer other tax sops like exemption from revenue-sharing for rural telephony
The NTP also puts a thrust on providing incentives for rural telephony
The NTP also puts a thrust on providing incentives for rural telephony. It says, With a view to promote rural telephony, government will allow seven years of exemption of revenue-sharing to service providers on revenues from rural subscribers.

The government would also, as per the draft, further reduce duties and taxes on end-user devices (such as PCs), to increase broadband penetration in the country. The draft further says that the government would encourage local manufacturing of PCs and end-user devices, and would reduce leased line charges for data centres and hosting.

The draft NTP also says, A rationalisation of the existing service tax and value-added tax (for example, service tax on interconnectivity charges) will be undertaken to encourage growth in the sector.