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More sales tax sops for telecom sector on cards

Hema Ramakrishnan

Shaji Vikraman

NEW DELHI, July 29

AFTER a slew of budgetary sops, telecom service providers in the public and private sectors are set to be accorded yet another concession aimed at bringing down costs of goods procured by them in the course of inter-State trade.

The Union Cabinet is set to consider shortly a proposal to amend the Central Sales Tax Act 1956 to give the telecom industry the concessional four per cent Central sales tax benefit. The change in the taxation structure, when carried out, will benefit be sides the State-owned BSNL, VSNL and MTNL, the major telecom providers in the private sector such as Bharti, BPL, Batata-BPL combine, Hutchison and Reliance.

The four per cent concessional tax rate is currently available only for goods purchased during inter-State trade for use in mining or distribution and generation of electricity.

Apart from these two sectors, the benefit of the four per cent CST is available on procurement made by all Government departments. The concession, for instance, was available to the erstwhile Department of Telecommunications (DoT). However, with the corp oratisation of DoT, the benefit is not available to Bharat Sanchar Nigam Ltd (BSNL).

DoT officials pointed out that the Ministry has forwarded a proposal to the Finance Ministry seeking an extension of the benefit of the four per cent sales tax concession to all telecom service providers. This is expected to help the local companies beco me more competitive.

The procedure for availing the CST benefit entails issuance of Form `D' in the case of Government procurement and Form `C' for goods used in mining or distribution and generation of electricity. With the proposed inclusion of the telecom sector, service providers would be required to issue Form `C' for their procurement.

In this year's Budget, the Government made the five-year tax holiday retrospectively for units commencing their operations on or before March 31, 2003. This concession has been extended to Internet service providers (ISP) and broadband networks.

In the telecom equipment sector, the Government has already reduced customs duties which would be completely phased out over the next two years as per the Information Technology Agreement with the World Trade Organisation (WTO). The commitment also envis ages lowering of customs duties on components for IT products including telecom equipment. With the reduction of customs duty on inputs, the cost of indigenous telecom equipment is expected to come down.