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Monday, Jan 14, 2002

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I-T sops for telecom cos likely to stay

Hema Ramakrishnan

NEW DELHI, Jan. 13

THE Government is set to retain the income tax benefits, including a five-year tax holiday, given to telecom companies and other infrastructure service providers in the Budget, following the recommendations of a high-level Committee.

The committee, chaired by Mr N.K. Singh, Member, Planning Commission, has rejected the proposal made by the Parthasarathy Shome Committee on Tax Policy and Administration to scrap income tax breaks under Section 80 IA and 80 IB of the Income Tax Act, 1961. It had, instead, made out a case for continuing the tax concessions to make investments in infrastructure attractive, said a senior government official.

The Department of Telecommunications (DoT), on its part, has mooted extension of tax holiday under Section 80 IA to State-owned telecom companies, saying that 70 per cent of the new investments during the Tenth Plan are likely to be made by these companies.

MTNL plans to flag this issue in its pre-Budget discussions with the Finance Ministry. The company's contention is that the criteria for eligibility should be the level of investment rather than the date of setting up the network.

Under the existing provisions of Section 80 IA, a two-tier tax benefit is extended to profits accruing to basic and cellular operators, Internet service providers and broadband networks set up on or after April 1, 1995 and before April 1, 2003. The benefit to these enterprises includes a five-year tax holiday, with a further deduction of 25 per cent of profits (30 per cent in the case of companies) over the next five years.

Tax breaks under Section 80 IA are also available to enterprises engaged in power generation, transmission and distribution, developers of special economic zones, industrial parks as well as enterprises engaged in developing, operating or maintaining infrastructure facilities including roads, highways, bridges, airports, ports and rail systems.

The Shome Committee, which was critical of the incentives given for the development of backward areas, held that the tax benefits under Section 80 IA had adversely impacted revenue flows because of its wide coverage.

The panel held that the benefit of these provisions (Section 80 IA and 80 IB) should be terminated even in the case of existing eligible taxpayers. This implies that if the assessee has availed the tax concession for six years, the benefit should not be given for the remaining four years.DoT officials contend that a sudden withdrawal of the benefits, which are intended to shore up investments in these sectors, would adversely impact the cost calculations of telecom majors (which have factored in the tax benefits).

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