Mahanagar Telephone Nigam Ltd. (MTNL) has been directed by the income tax department to pay Rs. 2 bn as arrears of taxes.
MTNL( with a revenue of 50 bn for 1999) is a public sector telecom undertaking that is listed on the bourses.
The recent judgement is likely to lead to a considerable outflow of funds for the telecom giant. MTNL has prayed for its protest to be heard on the 30th of March by the Committee of Disputes. MTNL’s main contention is that under the new telecom policy announced last year, income derived from license fees are exempt from tax, whereas the tax authorities feel otherwise.
The outflow of funds may upset the financing plans for its ventures into Internet, cellular and related services. It may also adversely impact the listing of the company on the NYSE in May. However, it needs to be mentioned that the outflow of Rs 2 bn (which is still sub judice) is just 16% of its FY99 profits and in view of the company’s strong credit standing raising additional resources should not be a matter of concern. The Chairman and Managing Director has stated that the proposed payment would not impact the bottomline of the company.
However the only positive outcome of the announcement is that the hitherto 14 frozen accounts of MTNL have been freed. This is likely to impart a great deal of liquidity to the undertaking’s operations, as blocked funds are released.
Analysts have rated the stock as a “HOLD” on account of the above development that is to be resolved shortly, though some others are of the opinion that is may be bought because of the bright future for the telecom industry.
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