What the budget can do

Updated: Jan 10 2005, 05:30am hrs
FE-ICRA SNAPSHOT

Total telephone connections are expected to increase from 86.7 million at end-September 2004 to 96 million (fixed: 45 million; cellular: 51 million) by March-end 2005. Cellular subscriptions are expected to account for 89% of additional telephone connections during the current financial year, and 53% of telephone connections by March-end.

KEY ISSUES

Intensification of competition, price declines, and network expansion

The implementation of unified licensing is expected to spur consolidation and result in increased competition for GSM-based cellular operators from CDMA services.

Telecom voice revenues are expected to grow at a slower pace than subscriptions. Increased penetration of data-based services is expected to drive revenues.

The proposed hike in FDI limit from 49% to 74% would encourage increased foreign stake in some companies. The actual FDI flow indicates a peak inflow of Rs 39.71 billion during 2001, before declining significantly to Rs. 0.87 billion in 2004.

TAX STRUCTURE

Service tax of 10.2% on all telecom services.

Under Section 80IA of the Income Tax Act, an undertaking which has started or starts providing telecommunications services, before March 31, 2005 is allowed a deduction for any 10 consecutive years beginning from the year it starts providing services.

CEO SPEAK

The telecom sector is heavily taxed. We would like taxes reduced to zero. Since it is a service sector, let the consumer enjoy the benefit. On FDI, the limit must be raised to 74%, especially since this is something that was promised in the last budget.

FE PERSPECTIVE

The government must honour its promise to raise the FDI limit to 74% if it is serious about increasing telecom penetration

The present access deficit charge (ADC) regime must be abandoned in favour of a universal service obligation based on revenue-share

More spectrum must be freed up so that telecom services become more efficient and more affordable

CII SUGGESTIONS

Customs duty on fixed wireless phones (FWPs) should be brought down to 5% from 15%, i.e., at par with the cellular phones

Reduce customs duty on capital equipment required for manufacture of mobile phones (cellular & FWPs) to 5% with nil CVD and import duty on inputs for equip-ment to nil at the time of implementation of last phase of IT agreement in 2005

FICCI WISHLIST

100% tax holiday should be provided for 10 years. The period of availing tax holiday be reckoned from the year of commencement of income of the unit rather than from the commencement of production

Telecom manufacturing units, wherever located,should be treated at par with units in SEZ/EOU with I-T benefits under section 10A, 10B and 80-IA