Union Budget 2016: Telecom Sector's Expectations

by CXOtoday News Desk    Feb 18, 2016


India’s telecom sector has a list of demand to be fulfilled at the Union Budget 2016. India currently boasts of being the second-largest telecommunications market in the world and has recorded consistent growth. However, a number of their demands have not been met in the last several fiscals. Telecom bodies and organizations are now looking at clearer policies and ways that can help them in reducing debt.

The Cellular Operators’ Association of India (COAI) has submitted Budget recommendations to the government which include suggestions on central value added tax (CENVAT) credit, deductibility of spectrum fees paid and tax withholding on distributors’ margin on sale of SIM cards and prepaid vouchers. Rajan S Mathews, Director General, COAI, said in a statement, “We have been so disappointed in the last several Budgets that we are not asking for any big ticket items.”

Read more: Three Big Data Trends Driving Telecom Sector

Needless to mention therefore that Budget 2016 wishlist from the telecom sector has more requests for clarity on various policies. Particularly with regard to taxation. First on the list is whether payments made for trading or sharing of spectrum are royalty. If not, the sector asks that the withholding tax applicable on these payments be removed.

The industry body submitted this tax has resulted in an increase in the cost for end consumers in India since such payments are generally made on a net of tax basis, that is, tax cost in India cannot be passed on to the international operator.

Regarding the Swachh Bharat Cess (SBC) levy, the industry association said, “With levy of SBC, the effective rate of service tax has further increased to 14.5 percent and this would increase the overall cost of telecommunication services for customers. Given the fact that there are multiple other levies such as license fee, applicable on telecommunication industry, SBC should not be levied on telecommunication services.”

The recommendations stated that in the budget for 2014-15, the rate of interest on delayed payment of service tax was increased to 30 percent. “This rate of interest is not compensatory but penal in nature and the same should be reduced to a more reasonable rate.”

“The number of tax disputes, whether it is royalty on capital gains or spectrum trading, we need clarity on that especially in context to spectrum trading,” explained Romal Shetty, head- telecommunications, KPMG in an interview with CNBC-TV18. He added that the other demand is for more clarity on how spectrum fees are to be taxed.

Telecom experts also see an urgent need to reduce excise and customs duties on hardware to help consumers keep up with changing technology. “If 4G evolution has to happen, we need handsets that are 4G enabled, so what kind of incentives can be given for 4G handset manufactures,” Shetty mentioned in the interview.

Talking about the Indian mobile services industry, Hemant Joshi, partner at Deloitte Haskins & Sells, said the subscriber base has crossed the 100 crore mark in India making it the second largest market in terms of subscriber base. However, stakeholders are yet to leverage the power of telecom to boost GDP, improve inclusion including financial inclusion for the under privileged and the rural sector, reduce digital divide, reduce wastage and leakages, improve efficiency – in transportation, energy, logistics, agriculture, water, etc. using Internet of Things (IoT), sensor technology, broadband, etc.

“Telecom sector should be considered as the backbone of the digital world and should be given strategic importance in the budget,” he said, indicating that the top budget recommendations for telecom industry include, reduction in MAT rate, clarity on amortization on spectrum acquired through auction under Income Tax Act to avoid litigations and incentives for small mobile payments to make Indian economy cash less.

Of the other concerns, fixing timelines for closure of litigations to reduce number of litigations and bringing in certainty, incentives in the form of tax holidays that would encourage private sector participation in digital India Initiative and Green Initiative incentives are other areas the Budget should look at.

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Experts in the telecom sector indicate that the demands would extend beyond taxation. One of them being the creation of a specialized committee to ensure the implementation of the broadband highway connecting gram panchayats and villages. 

The Telecom Equipment Manufacturers Association of India (TEMA), which represents local telecom product makers, also wants the government to levy a 5% cess on telcos to build a corpus for funding local telecom R&D and IPR creation - to boost local manufacturing.

“Infrastructure status to domestic telecom equipment manufacturing companies complying with PMA provisions will help the industry to benefit from the incentives,” said TEMA chairman Emeritus N K Goyal in a statement.

TEMA has also sought extension of tax sops under Section 35AD to local telecom gear makers complying with PMA norms to boost local manufacturing of electronics and telecom gear.

The industry body has also sought imposition of 25% duty on telecom/ICT products under the `Others’ category that are now being imported at zero duty. These would primarily include mobile network and broadband systems that are outside the purview of Information Technology Agreement (ITA) that India inked back in 1997.

The Telecom sector, more so, the handset segment is going through churn and this especially holds true for startups like ours, said Shripal Gandhi, Founder & CEO of SwipeTechnologies. 

According to him, “As a start-up in the telecommunications sector, we are looking at the forthcoming budget with lot of expectations. We expect the Finance Minister to look into the concerns of the start-up community and allocate additional resources to address those in order to ensure healthy growth of the entrepreneurship in the country.”

Gandhi explained that with rising labour costs strength of its currency, China is losing its edge as the manufacturing hub of the world. On the other hand, with competitive labour costs and weak currency, India is ideally placed to take up the role of manufacturing hub of the world. “We would expect the government to announce labor reforms and the relevant policy measures for the manufacturing sector so that India can leverage its competitive advantages of low-cost labour and a weak currency,” he added.

Read more: Make In India: Mobile Phone Production To Soar

While the Government’s intent is clear with the “Make in India” initiative, the domestic manufacturing can be further incentivized with tax breaks. More funds must be allocated in the development of infrastructure which is critical for manufacturing. Investments in connectivity infrastructure will be a clear positive. 

Experts believe while their requests were mostly ignored in the last few budgets, this year, even if some of these demands are met, the sector can look forward to a slightly better days ahead.