RESEARCH IT  >>  INDIAN ECONOMY  >>  BUDGET 2002

Telecom Industry

   Budget measures
  		• Telecom service providers were demanding an extension in tax holidays for another five years, which has been granted.
  		• Service tax imposed on telecom services like telex and leased line services
  		• Dividend tax reduced to 10%

       Budget Impact
  		• The extension of tax holiday for telecom service providers would facilitate these telecom companies to enhance their infrastructure and build additional capacities.
  		• Service tax on telex and leased lines at the rate of 5% is expected to affect companies like VSNL, MTNL and private telecom companies like Bharti as their effective tax rate is expected to increase in FY02.
  		• For a capital-intensive industry like telecom, the reduction in dividend tax has come as a savor. This would enable these companies to augment capacity.

      

    Industry wish list

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    The industry has asked for a cut in the import duty rates of cellular phones to 19%. Currently, the phones attract a duty of 27% inclusive of countervailing duty. The industry has asked for the CVD to be brought down to the lowest slab.

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    Telecom service providers (cellular and basic) would like an extension in tax holidays for another five years. The current scheme ends in fiscal 2001 and was offered as telecom providers were given status of infrastructure providers. With new players expected to enter both the fixed and cellular circles the industry seeks an extension of holidays.

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    The industry seeks that the Internet services providers be treated at par with basic and cellular operators and are given the status of infrastructure providers.


       Key Positives
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    The government has de-regulated the domestic long distance telephony. With the entry of private operators, outstations calls are expected to become cheaper, which could push up telecom usage.

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    The setting up of the Telecom Regulatory Authority of India (Trai) has de-politicised the reform process in the telecom sector. Benefits are already apparent from the new revenue sharing regime implemented by the Trai for cellular and basic telecom operators.

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    Mobile subscriber base has increased multi-fold in the current year.

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    The government has taken initiatives to attract investment in the telecom hardware and services sectors by easing FDI guidelines. This will ease the funding constraint that is being faced by Indian companies.

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    Both Internet usage costs and bandwidth costs have fallen considerably thus increasing the subscriber base.

    		 
       Key Negatives
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    In case of cellular telephony services, the proposal to implement a calling party pays regime has been challenged in courts. The matter has been further complicated by the refusal of public sector players – MTNL and DoT, to abide by the rulings of the Trai. Recently, the government has decided to amend the Trai Act to tackle the matter. Consequently, there is some lack of clarity regarding regulation.

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    Import duty on telecom hardware continues to be at a high 35%. This has led to higher capital costs for telecom projects.

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    Recently, TRAI has allowed fixed service providers to provide limited mobility services, which has dampened sentiment and valuations of mobile telecom circles.

     
  • How was this sector impacted by Budget 2001?