Rediff.com  » Business » Budget 2012: Telecom towers eligible for viability gap funding

Budget 2012: Telecom towers eligible for viability gap funding

March 17, 2012 09:54 IST
Get Rediff News in your Inbox:

The Union Budget 2011-12 was a low key affair for the Telecom sector. The Budget did not mention extension of fiscal benefits under the Sec 80IA from 5 years to 10 years.

Govt targets Rs 40,000 crore from spectrum auctions

Telecom towers made eligible for viability gap funding

Mobile phone parts exempted from basic customs duty

Infrastructure investment in 12th Plan to go up to Rs 50 lakh crore; half of it to come from private sector:

Income Tax Slabs: Up from Rs 1.8 lakh to Rs 2 lakh - NIL; Rs 2- 5 lakh - 10 per cent; Rs 5 & 10 lakh - 20 per cent; Above Rs 10 lakh - 30 per cent;

Standard excise duty hiked to 12 per cent from 10 per cent.

No change in peak customs duty.

The budget proposes to keep the MAT limit unchanged at 18.5 per cent.

Service tax rate increased from 10 per cent to 12 per cent.

The existing surcharge of five per cent in case of a domestic company shall continue to be levied. In case of companies other than domestic companies, the existing surcharge of two per cent shall continue to be levied.

All services to be taxed except Clause 17 (negative list).

No change in corporate tax rates.

Withholding tax reduced to 5 per cent from 20 per cent.

Remove cascading effect of dividend distribution tax.

Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent up to 31.3.2013.

Weighted tax exemptions at the rate of 200 per cent of expenditure for in house R&D for extended by another 5 years i.e. up to 31st March, 2017.

Investment link deduction of capital expenditure for certain businesses proposed to be provided at the enhanced rate of 150 per cent.

Common tax code for service tax and excise.

Infrastructure investment in 12th Plan to go up to Rs 50 lakh crore; half of it to come from private sector.

Proposes to remove sector-specific restriction on venture capital fund investments.

DTC Implementation deferred.

GST to become operational by August 2012

Industry Expectations – Very few fulfilled

Very few of the major industry demands were fulfilled. Following were the industry expectations:

The industry expected faster finalisation of 2G spectrum bidding process, more clarity on the spectrum prices and related issues.

National Telecom policy which was slated to be released in 2011, is expected to bring more clarity on pricing, M &A's and related spectrum issues.

The industry demanded 100 per cent tax exemption under Sec. 80IA from current five years to extend exemption to 10 years.

Re-introduction of the tax holiday benefits under Section 80IA of the I-T Act to operators similar to provision that exempted operators commencing services prior to 2005.

Spectrum fees currently account for around 3-4 per cent of total revenue and licence fees 8

per cent of revenue. Under current norms there is no clarity on whether service tax is to be levied on this amount.

The industry expected tax holiday benefits for M&A which are currently available in the form of tax benefits u/s 80 IA to continue In order to encourage industry consolidation as tax benefits shall improve financial viability of mergers.

Clarity on MAT credit available under Section 115JAA of the I-T Act would continue to be available in case of merger/acquisition.

Providing tax breaks to telecom infrastructure service providers.

The industry expected clarity on tax treatment of 3G spectrum payment.

To extend Income Tax benefits under Section 80-IA to Independent Infrastructure Service Providers. Granting Infrastructure status to Independent Telecom Infrastructure Providers as a separate entry u/s 80-IA (4).

No import duty to be imposed on imported mobile handsets.

The industry expects effective deployment of USO (Universal service obligation) fund to ensure speedy roll out of telecom infrastructure in rural areas to increase rural penetration, which stands at less than 20 per cent currently. This move would be positive for all telecom operators.

Industry expects reduction in service tax in the broadband segment.

Budget Impact

Increase in service tax is negative but companies may pass the costs.

Telecom towers eligibility for viability gap funding would provide much needed access to funds and is positive.

Mobile phone parts exemption from basic customs duty would increase penetration in rural areas and is a positive.

Increase in income tax slab is marginally positive as is would increase consumption and aid in higher ARPUs.

There was no mention of tax treatment of 3G spectrum payment.

The government has announced a USD 1 billion venture capital fund for MSME across the country. Eco-system for early stage companies set to improve as budget proposes to remove sectoral caps on venture capitalists which will promote innovation.

Outlook

The increase in service tax is negative for the telecom service sector.  Though generally it is a pass through item, the full talk time schemes have become very popular and to this extent the increase in service tax is being absorbed by the services sector.

Alternatively, full talk time scheme needs to be reduced, but the industry may not like to rush on this front, considering their popularity, and the competitive milieu.

Overall, it was a neutral affair for the telecom sector. The telecom sector which is currently facing lot of challenges on the competitive and regulatory fronts, relating to tariffs, mergers and acquisitions and MNP implementation is among the heavily taxed sectors in India, attracting various levies such as license fees and spectrum charges. A uniform tax structure would have helped in reducing operational costs, in turn lowering tariffs, which is necessary for the next leg of growth to be led by rural India.

Get Rediff News in your Inbox:
Powered by
SHARE THIS STORY