Ring in next phase of growth

The growth of the telecommunication sector has fuelled the inclusive growth agenda. . Today, every fifth person in rural India is connected.

During the past year, the sector has made significant contributions to the government through 3G and Broadband Wireless auctions. As a Budget wish-list, the sector would expect that some portion of this contribution to be diverted towards growth of this sector.

Some of the expectations would be:

Tax holiday/Subsidies for expansion to remote areas: Given the lower Average Revenue Per User (ARPU) levels and low subscriber density, the business case for expansion to the rural areas is relatively weaker ; as an incentive to provide telecom services in the rural/ remote areas, the government may consider tax holidays or subsidies.

Continuation of tax holiday benefits in case of mergers/amalgamations: Currently the industry is going through a phase of very high competitive intensity and there is a strong likelihood of consolidation by way of mergers/amalgamations. In such a scenario, it is recommended that the benefits outlined in Section 80IA be continued and the associated restrictive provisions removed

Tax benefits for 3G & BWA auction fee payment: There should be clarity on the treatment of the fee payment by companies for acquiring spectrum for provisioning of the 3G and BWA services. This would cover upfront payment, interest cost on capital borrowed for the purpose of auction fee payment and also the foreign exchange fluctuation on account of overseas borrowings

Simplification of the tax structure: The industry is subject to multiple levies (service tax, licence charges, spectrum charges including universal service obligation fees, VAT, entry tax etc) and a significant portion of the revenue from the customer goes into the government kitty in terms of taxes and license fee through revenue share. In this scenario, a rationalisation of the existing revenue sharing license fee regime is of utmost importance. Multiple levies should be phased out and replaced with a single levy, which can be implemented in a transparent manner

Promote local manufacturing: While the service sector has shown significant growth, certain elements of telecom value chain such as manufacturing are currently in a nascent stage. The Government may look at following incentives to promote local manufacturing:

*Creation of 4/5 industrial parks dedicated to telecom manufacturing including mobile handsets and devices may be set-up. These parks should provide the basic infrastructure to support the entire range of activities from production, import, local trade, export, repairs, design, research and development for both goods as well as services

*Export incentives should be given to make India a manufacturing hub. *There is shortage of skilled manpower in India for telecom manufacturing; proactive manpower development and training policies in collaboration with OEMs may be developed and the Government set aside a fund for this purpose

Research & Development: In order to promote R&D, the government may consider following incentives:

*Seed money for promoting educational research, design houses, semiconductor industry, tooling etc.

*Tax rebates and other exemptions (customs duty, excise duty and VAT on any inputs) for companies which set up R&D facilities

*Subsidy on capital investment for setting up the R&D facility. In order to attract the design houses in the field of telecom equipment, service tax exemption for the services of the R&D centre utilised by other companies may be considered

Passive Infrastructure: Telecom passive infrastructure companies may be given benefits similar to those given to other infrastructure providers (e.g. power/natural gas distribution) and may consider tax holidays/incentives for their expansion to the remote areas

There are several areas in the country where due to non-availability of power, the services are either not available or commercially unviable to operate for the service providers (operating on DG sets).

The Government may consider some incentives/subsidies for deployment of green technologies which will not only help proliferation of telecom services to far-flung areas, but also be environmental friendly and also save government on the diesel-subsidy burden.

The telecom growth seen in the last decade and success of the sector can be attributed in no small part to the several regulatory and policy measures taken by the government.

The policy initiatives coupled with numerous growth-oriented steps taken by private players and other stakeholders have created a truly stimulating environment. Continuing with fiscal and other policy initiatives will further reinforce the Indian telecom story.

(The author is Executive Director, KPMG.)

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