COAI Pre-Budget Memorandum
The telecom sector has played a vital role in the growth of the Indian economy and has emerged as the prime engine of economic growth. As a step further towards expansion of telecom service and spread of Mobile Broadband, the Government recently auctioned 3G spectrum. The same has also been allocated and the GSM industry is now gearing up to launch Third Generation (3G) and Mobile Broadband services in the country, which involve high-end data offerings on mobiles.
However, it has been well recognized by the Government Agencies, including TRAI, that the spectrum allocated to the Indian operators is very inadequate for the spread of Voice and Data services in the country. The spectrum allocated is also inadequate to meet the Government target of spread of data / mobile broadband service to rural areas. So as to fully exploit the benefits of mobile telephony, our members would require allocation of more spectrum.
We would therefore request the Government to initiate the process of auctioning more spectrum for mobile services at the earliest. The mechanism to auction 3G spectrum has been recently used successfully by the government and the same should facilitate an early auction of additional spectrum.
In view of the above, the government should envisage auction of additional spectrum in the Financial Year 2011- 2012 and accordingly include the proceeds from auction of additional spectrum in the budgetary estimates. This will enhance the proceeds to the exchequer and would serve the national interest of spread of telecom service to all corners of the country.
1. Multiple Taxes and Levies:
The telecom services sector is facing diminished growth in spite of significant additions in the subscriber numbers. As is evident from the table below, the revenue growth in the telecom services segment has been negligible on account of a turbulent phase of price wars and a discriminatory and administratively inefficient taxation of telecom through a menagerie of taxes, levies and charges which are not applicable to most other industries.
| | 2007-08 | 2008-09 | 2009-10 |
| Cellular Revenue (Rs Crs) | 76,608 | 93,522 | 96,860 |
| Growth % | 36% | 22% | 3.6% |
(Source Voice & Data ;July 2009/ July 2010)
Various studies have shown that a 10% increase in mobile penetration leads to a GDP increase of upto 1.4%. A diminished growth of telecom sector will adversely impact the growth of GDP. And hence it becomes all the more important to remove various bottlenecks, such as multiple levies, which hamper growth of service.
The telecom sector continues to be plagued by multifarious taxes, charges, fees and levies such as license fee, spectrum charges, service tax, entry tax, Octroi, stamp duty, various levies on towers besides the regular corporate income tax. This is hampering the growth and spread of telecom services.
It is estimated that these taxes and levies account for as high as approximately 30% of telecom service revenues which is far higher when compared with other Asian economies at around 5%.
Burden of Duties & Levies-International Comparison
%age of revenue
| Regulatory Charges | Pakistan | Sri Lanka | China | Malaysia | India |
| Total Regulatory Charges | 2.5% + GST + cost recovery | =1.3% t.o. + 1% inv + VAT | ~ 0.5% +3% (TAX) | 6.5% | 23% to 32% |
The telecom sector in India therefore continues to be one of the highest taxed despite the fact that the mobile tariffs in India are the lowest in the world. For a more inclusive economic growth, it is important to take telecom services to the masses including the rural areas.
In the current economic scenario where most of the industries are facing liquidity issues globally, rationalization/ reduction in some of the multiple taxes on telecom sector would substantially aid in releasing funds required for enhanced investments in semi-urban and rural areas and making the services even more affordable to the masses. Thus, it is important that the present structure of multiple levies is rationalized to make the fiscal environment more conducive for the growth of the sector.
Moreover, such reliefs in a highly competitive market are more likely lead to progressive tariff reduction. Most of the tax revenues lost through the reliefs would be offset by a moderate increase in the customer base and an increase in the traffic, and by the strong multiplier effects proven to be induced by telecom.
2. Amortization of the amount paid for 3G licenses:
Another issue which requires urgent attention is the amortization of the auction amount paid for 3G licences. Recently, the Government of India, through the Department of Telecommunications (‘DoT’), has allotted the rights to use radio spectrum frequencies in the 2.1GHz band (commonly known as the 3G spectrum). By way of the 3G auction, the Government has raised Rs 67,718 crore (approx.). We request that this upfront auction amount paid for acquiring 3G spectrum should be allowed as a capital asset for the purpose of tax depreciation and an amendment be introduced regarding the same.
Further, the Department of Telecom (DoT), in response to the various queries raised on the Notice Inviting Application (NIA), had stated that the Government is evaluating the proposal of allowing treatment of upfront auction price as a capital asset for the purpose of tax depreciation.
Telecom operators have made significant investment for 3G business and the above amendments will ensure that proper tax deduction is conferred to the telecom operators in respect of such expenditure. This will lead to enhanced cash flows and will thus enable spread of affordable 3G service.
3. Infrastructure Status for Telecom Mobile Industry
The Indian Government has given support to the telecom sector, which is a critical infrastructure for economic growth of the country and has a direct multiplier effect on the GDP. Responding to the support, the Indian cellular industry lived up to the requirements & has achieved high telecom penetration at affordable prices. However, the task is not completed as yet & significant capital infusion will be required going forward, therefore it is required that telecom be classified as Infrastructure & benefits extended to the sector be available to this industry as well.
22nd February, 2011
New Delhi
No comments:
Post a Comment