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February 28, 2001                                       Feedback  

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Tax holiday extended to cover all

BS Bureau

In a bid to boost fresh investments in telecom infrastructure, the government has announced extension of a tax holiday to all telecom projects beginning in or before March 2003 and reduced the customs duty on telecom products to a flat rate of 15 per cent. However, the Budget 2001-02 offers no immediate benefits to the end consumer of telecom products.

The two-year extension of tax holiday, which was slated to end in March 2001, will benefit companies willing to make a foray into the telecom sector. While the industry has welcomed the move, it falls short of the demand made by representative bodies like the Cellular Operators Association of India and Association of Basic Telecom Operators for a tax holiday up to March 2005.

The reduction in customs duty to 15 per cent on telecom components, which so far were under a varied duty structure, will benefit not only the new telecom operators but also existing operators who want to expand their network. The finance minister, while keeping the concessional customs duty rate of 5 per cent applicable to specified telecom equipment for basic and cellular telephony, VSATs, radio paging and radio trunking, has extended the benefit to March 2002.

Commenting on the Budget, Bharti Group chairman Sunil Bharti Mittal said: "The extension of tax holiday to telecom companies starting operations on or before March 2003 is much appreciated and will give positive signals to investments in the sector. While the reduction in customs duty is a welcome step we believe that the countervailing duty on mobile handsets is out of place."

But by and large the industry's pre-budget demands, which included further reduction of customs duty on cellular handsets, cut in customs duty on WiLL handsets to 5 per cent, allowing telecom companies to choose the period of the 10-year tax holiday from the first 20 years instead of 15 years, and a differential between import duty and excise duty for boosting local manufacture of telecom equipment, have been ignored by the finance minister.

Industry experts, however, feel that there are some indirect benefits to the telecom sector. Girish Rangan, CEO, BPL Mobile, said: "The allowing of two-way fungibility of ADR and GDR shares into local equity will infuse FDI in the telecom sector. Similarly, the tax incentives will give consumers more disposable income to use on communication services".

There has been a decrease in the Central plan outlay for the communication sector. As compared to the revised estimates for the year 2000-01 of Rs 203.17 billion, the sector this year has been given Rs 202.89 billion. This is primarily due to the fact that the department of telecom services which was corporatised this year has been kept out of the Central outlay plan.

BSNL, however, has been given a non plan grant of Rs 15 billion for fulfilling objectives in rural areas and village panchayat telephones as envisaged in the NTP 99 and an additional investment of Rs 165.74 billion as planned investment in public enterprises. Investments in Mahangar Telephone Nigam Ltd has come down by Rs 450 million from Rs 16.45 billion last budget to Rs 16 billion for 2001-02. Investment in Videsh Sanchar Nigam Ltd has also been reduced from Rs 19.17 billion to Rs 18.14 billion.

Source: Business Standard

The Budget 2001-2002 Special
The Rediff-Business Standard Budget Special

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