The Union Budget is one of the most-awaited events for India Inc. This year, the Indian telecom sector is optimistic that there will be something good in store – the sector is struggling with a cumulative debt of more than ₹5-lakh crore and falling revenues of under ₹2-lakh crore.

This will be the first Budget presentation after the implementation of GST and the second after demonetisation. The telecom sector needs a budgetary intervention, and has submitted a long list of suggestions to the government. Below are three of the most crucial.

1) Taxability of RoW by local bodies: The government introduced the Right of Way (RoW) rules to standardise processes and fix charges regarding the setting up of telecom infrastructure, including towers and optical fibre cables.

As this is public land, the transactions between the municipal/local bodies should not be taxed. However, the Central tax authority is of a contrarian view resulting in litigation and disputes with the local authorities.

2) Tax withholding on distributors’ margin on SIM cards and prepaid vouchers: Telcos transfer usage rights of prepaid/SIM cards to distributors at a discount.

This discount is not a commission, as these distributors do not act as agents of telecom companies, and, therefore, the transaction should not attract withholding tax.

The Cellular Operators Association of India (COAI) has asked that the government issue clarifications on the issue, or prescribe a lower withholding tax rate.

3) Customs duty exemption for LTE equipment required for 4G network and telecom devices: The government has withdrawn the exemption on import of 4G LTE equipment to promote domestic manufacturing.

However, the scale and quality of equipment needed is not yet available domestically, forcing telcos to pay a higher import duty. The telecom sector is the biggest supporter of indigenous manufacturing.

However, till such a time when quality products at a competitive price are available in the country, the government needs to rethink its stand regarding customs duty on equipment to ensure the timely roll out of networks.

Apart from the budgetary intervention, the government must look at reducing the applicable GST rate to 12 per cent from 18 per cent as the high cost of operations in India is putting questions on the sustainability of the industry in the short-term.

The writer is the Director General of COAI

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