The property tax has been imposed on a two-acre property that the state-owned telecom unit purchased four years ago for Rs 12 lakh at rates that government departments and public sector units are eligible for, MTNL sources said.
The MCD recently revalued the property and decided that MTNL should pay Rs 22 lakh a year in property tax. It also decided that the telecom PSU would have to pay this amount for the four years in which the property has been in its possession, which works out to Rs 1.76 crore.
The payment of property tax will adversely affect the benefit that MTNL gained through the reduction in the corporate tax surcharge from 15 per cent to 7.5 per cent. This had, in effect, reduced the effective tax from 46 per cent to 43 per cent.
MTNL's net profit was expected to increase by around Rs 16-18 crore through the reduction in tax rates. It had paid a huge Rs 574 crore in income taxes in 1995-96, though this amount had included some prior period adjustments.
Analysts say the imposition of property tax should not have a significant impact on MTNL's profitability. Earlier, they had expressed apprehensions of a squeeze on MTNL profits due to a redemption of bonds due next March. However, MTNL officials said a budgetary provision had already been made for the bond redemption.