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February 28, 2001                                       Feedback  

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Service with a smile,... plus 5% taxes

Team NetScribes

There will be no more free lunches, or services for that matter. A 5% service tax announced by the finance minister will make all your routine requirements - bandwidth, faxes, the CA's advice and the like - that much more expensive.

Even getting your photograph clicked is going to cost more.

Others falling in the service tax net are WAP services and financial portals offering online services over WAP phones.

Consumers have to pay more for telegraph services, authorised service stations for vehicles, convention services, sound recording, scientific and technical consulting, facsimile services, videotape production and auxiliary services for the insurance sector.

And companies are already beginning to complain.

Internet Service Providers, whose spirits have been lifted by a 10-year tax holiday announced in the Budget have been dampened, to an extent, by the service charge on their leased line services.

The new charge on leased circuits is expected to hurt companies that rely heavily on bandwidth, like call centre operators as bandwidth accounts for a major chunk of their capital expenditure.

"The exact impact will be known over the next few months. Till bandwidth prices crash further, ISPs will have to shell out an additional 5% in capital costs. It makes no difference to the retail consumer as bandwidth prices have been crashing over the last 12 months and should display the same trend in the future. At present, only heavy bandwidth users will be affected," said Amitabh Kumar, director (operations), Videsh Sanchar Nigam Ltd.

"It is not clear when the service tax becomes applicable - when we buy leased circuits from the DoT or when we provide leased circuits to customers? In the former case, we will pass it on to our customers, which means an increase in access rates," said R Ramaraj, Chief Executive Officer of Satyam Infoway.

While software services managed to escape the service tax net, banking and financial services like credit cards, merchant banking services, securities & forex broking and asset management, including portfolio management and custodial depository, didn't have the same luck.

Bankers are surprised by the fact that the service tax does not apply to services like cash management, advisory & investment, portfolio research & advice, advice on mergers & acquisitions and advice on corporate restructuring & strategy.

"We are still awaiting details and would be able to comment only after we are clear about the details," said Hemant Kaul, Senior Vice-President (marketing), UTI Bank.

The Budget 2001-2002 Special

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