Telecom Sector Unhappy With Rise In Service Tax

Telecommunications

Budget 2003-04 has provided a fillip to the dwindling fixed telephony services by cutting the Customs duty on a number of equipment, including fixed wireless terminals, routers, optic fibre cables and modems for Internet applications.

However, telecom operators said the benefits had been nullified by the 60 per cent increase in service tax and non-acceptance of major demands, like duty rationalisation on wireless handsets, and slashing the licence fee.

Analysts said the proposal to extend tax holiday under Section 80-1A would benefit only a few companies, like Reliance, Bharat Sanchar Nigam Ltd (BSNL) and Escotel, in areas where they are planning to begin services after March 31.

Sunil Mittal, chairman, Bharti Enterprises, said, "The reduction in duty on optical fibre cables and capital goods is a good move for the entire value chain. But there is the need to rationalise the licence fee structure for the telecom service providers. It is not only desirable but also imperative."

While the Budget has proposed a number of steps, including bringing down the Customs duty on telecom equipment from 25 to 15 per cent, on optical fibre cables from 25 per cent to 20 per cent and from 15 per cent to 10 per cent on routers, modems and fixed wireless terminals, basic operators have said enough has not been done.

Sanjay Mehta, partner, Ernst &Young said, "Though telecom is more dependant on regulations, this Budget has been a disappointment for the sector. If you are looking at giving a China-like impetus to the sector then the proposals are not going to help."

S C Khanna of the Association of Basic Telecom Operators, said, "The proposal to increase the service tax is against the objectives of providing affordable communication services. Other benefits announced are only marginal and would not result in any major cost savings."

Mobile handset manufacturers, who were expecting a reduction in basic duty from 10 per cent to 5 per cent and abolition of special additional duty of 4 per cent are also an unhappy lot.

Pankaj Mohindroo, president, Indian Cellular Association, said, "This is a lackluster Budget with an eye on polls. Given the need to further boost the penetration of telephony in the country, it was only pertinent that the duty structures on cellular handsets were rationalized, such that legal handsets become accessible to the common man."

However with a duty reduction on electronic components and on telecom capital equipment from 25 per cent to 15 per cent, equipment manufacturers are a happy lot.