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'Time To Lower Taxes on Telecom Services'

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One of the things that remain to be fully appreciated about telecom in India is the industry’s changing importance to the common man. There was a time, about 18-20 years ago, when telecom — mobile phones and access to the net — was a luxury. Today, it is a necessity. In fact, everyone, from farmers to carpenters, food delivery services to banks, transport operators, travel agents, media, just about anybody, needs access to reasonably affordable voice and data services. It is the only way to ensure faster and more equitable economic growth. It only seems natural then that taxes on telecom services be reduced. Currently, subscribers have to bear a 12.36 per cent service tax and the industry continues to attract 23 per cent tax, which is amongst the highest in the world.

For the industry to grow and meet the goals of the National Telecom Policy of “availability of affordable and effective communications for the citizen”, taxes must be reduced. Otherwise, rural penetration of telecom will remain a dream. It will be impossible for financial services, market data, government health and education schemes and m-governance/ e-governance to reach rural India. The imbalances between urban and rural development will continue to widen at a faster pace. The telecom industry will be hoping that taxes are rationalised keeping in mind that telecom is no more a luxury and a very basic enabler for the rural poor.

The argument that operators must drop call, data and other service rates (further) to increase uptake and market penetration is not a good one. Already, India has amongst the lowest rates in the world. Lowering it any further will cripple operators.

The rationalised tax structure will have a much-needed indirect impact: banks that find it difficult to lend money to telecom operators will loosen their purse strings, seeing that growth in the industry is assured. This budget must ensure that money is more easily available to the industry to build out better infrastructure (towers, Optical Fibre Cable, etc).

I would also emphasise diesel costs here. If they go up, it increases the bill to run cell tower generators (which are a major component of mobile infrastructure). The mobile industry is responsible for 3.5 per cent (2 billion litres) of India’s annual diesel consumption. The point is that the diesel generators are necessary, especially in remote rural areas where cell towers are not serviced by power grids, so either provide the operators with uninterrupted power supply else don’t cripple them by added costs. By implication, the Union budget must provide incentives for the adoption of alternate sources of energy for cell towers. Not only is this a long-term solution to provide power for communication, but also to bring down costs and reduce emissions. I believe telecom operators will welcome this, given the fact that it will also prevent pilferage of diesel that is rampant in the business and adds to operating costs.

On the hardware front, one can only hope that the finance minister thinks it prudent to continue with the 1 per cent excise duty for handset makers and the concessional excise duty rate of 2 per cent (on condition that no CENVAT Credit of any inputs is availed of) for parts and components such as battery chargers, memory cards and handsfree devices.

Overall, the emphasis on encouraging R&D expenditure (through the deduction of 200 per cent tax liability) has had the desired effect and we have seen local handset manufacturers offering some exceptionally rich devices to consumers. India is the second largest handset market in the world (after China). Indian users are becoming mature, demanding a complex set of features. This is a good sign and local R&D can only help reduce the cost of ensuring that every segment has access to smart phones. Besides, the development of such handsets will find a health export market.

Finally, we hope that the finance minister announces measures that will boost mobile entrepreneurs (through fiscal incentives, access to funds and through the creation of special funds that provide entrepreneurs with visibility in the international market and connects them with other entrepreneurs across the world). This is a key segment that is powering innovation around mobility. It pushes the industry envelope and ensures that handsets and networks continue to expand their capabilities and improve their services.

True democracy for a country can only be achieved when all its citizens can have access to education and information and can use the same to impact their daily lives in a more safe and productive manner, what better industry can enable that than mobility?

(Sunil Dutt is Managing Director of RIM in India)


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