The Hindu Business Line : There's still the second round

Cheaper mobile handsets spell good news. But lower handset prices make the second barrier (of taxes and levies) even more apparent. The connectivity bout isn't over for the consumer.

EVER since handset maker Nokia and Motorola decided to set up units in India, there has been a lot of talk about how a sub-Rs 1,000 handset will help the market explode, and bring the rural poor into the wireless network

But that is not the only barrier to connectivity, according to T.V. Ramachandran, Director-General, Cellular Operators Association of India, who spoke at the GSM 3G 2006 conference in Mumbai some time ago.

Lower handset prices will make the second barrier (of taxes and levies) even more apparent, he says. Part of it, of course, can be attributed to industries traditionally lobbying for lower/higher taxes and levies in the run-up to the Budget. But that India has some of the highest levies on telecom in the world has not been disputed by too many people.

Quoting from an International Telecommunications Union paper on levies and duties (2005), Ramachandran points out that levies start at the pre-launch stage itself — there are customs duties, entry fees (fixed amount), spectrum charges (fixed, again) and the Universal Services Obligation. Then there is sales tax, VAT and service tax.

Service tax, at 10.2 per cent of sales, has turned out to be a killer, says a senior executive with the telecom industry. The Government's `greed', he says, is evident from the thousands of crores that it says it will get from the booming telecom sector. It is always the customer who bears the brunt of service tax of course, making the service less affordable to him.

Then there are annual spectrum fees and annual licence fees to be paid, USO fees and other payments. Finally, of course, the corporate running the services pays corporate income tax.

While India fares well on the handsets front, the tax on handsets being around 4 per cent, it is the worst when it comes to other areas of telecom.

Licence fee as a percentage of revenue, at 5 per cent, is among the highest in the world. A like country such as Brazil charges zero licence fee. In Sri Lanka, the figure is 0.36 per cent, in Pakistan 2.5 per cent and in Korea 3 per cent, as of 2005, according to ITU, says Ramachandran.

Recurring spectrum charge as a percentage of revenue also currently runs close to 5 per cent, again among the highest in the world.

Import duty on telecom equipment is 16 per cent, and of course service tax leaps above that of other countries. "Levies on telecom in India are one of the highest in the world, they distort prices, stifle growth and dampen the multiplier effect on the economy," says Ramachandran.

For example, in 2004-2005, the revenues from the mobile sector went up by 62 per cent, he says.At 60 per cent of inflows, telecom was the highest contributor to the government exchequer. As the telecom sector earns more revenues, the Government is just going to earn more and more. And since it is going to earn so much more, Government is getting an unintended increase in inflows, and can afford to think of a progressive reduction in levies, said executives at the GSM 3G conference.

kripram@thehindu.co.in

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