Mahanagar Telephone Nigam Limited (MTNL) is seeking a tax holiday for a period of five years under Section 80 IA of the Income Tax Act. The company plans to pass on the benefits of the tax breaks to its customers.
MTNL (FY99 Revenues: Rs 52.47 bn), a public sector company, is a franchise of the Department of Telecom. The company has a 15-year telecom license to operate in New Delhi and Mumbai until the year 2013.
Under this section, telecom services companies can avail of a five-year tax holiday. These companies are also required to pay tax in parts for another three years. This measure will significantly improve the company's cash flows, which could then be passed onto the consumers and/or be used to finance capital expenditure.
If the company were to be successful in availing the tax breaks it would be at par with Hughes Ispat, which already enjoys such benefits. The company, however, needs to improve the quality of its services in order to maintain its lead in the longer term. This can be achieved by improving technology and customer satisfaction. The tax breaks will help the company to possibly stem the slowdown in volume growth for the next couple of years.
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