Run-up to the Union Budget 2002-03: Telecom (Equipment
and Services)
Background
The telecom equipment industry is quite fragmented, with a large number of cable, switching and terminal equipment manufacturers.
Demand for telecom equipment is expected to increase on account of private sector participation and demand for newer categories of products, arising from modernisation plans of Bharat Sanchar Nigam Ltd (BSNL).
Demand for cellular infrastructure is also expected to grow at a rapid pace. However, the benefits of this growth is not expected to trickle down to Indian telecom equipment manufacturers, as cellular operators import most of the equipment.
The fixed services segment of the telecom services industry in India continues to be dominated by state run enterprises such as BSNL and Mahanagar Telephone Nigam Ltd (MTNL). The subscriber base for fixed line services in India is around 32 mn, which translates into a tele-density of 3.2%, way behind the figure of 70% for the US.
However, the cellular services segment is dominated by private sector players such as Bharti, Hutchison Max and BPL-Birla- AT&T-Tata. The all-India subscriber base for cellular phones stood at 5.7 mn in Jan 02, a growth of 75% over the subscriber base as at end Jan 01. Recent months have seen the entry of MTNL in the cellular services business as well as price wars among the operators.
Key inputs Copper bars, Rods, PVC and Polyethylene
Customs duties on specified telecom products were reduced to 15% from 20-25%
Concessional rate of 5% customs duty on specific equipment and parts for basic
telephone, radio paging, V-SAT etc was extended up to Mar 02.
Two-tier 10-year tax benefits available under Section 80-1A were provided to Internet service providers and broadband network service providers and the time limit to set up these services to be eligible to claim the benefit was extended to end Mar 03 from end Mar 01.
Industry demands from Union Budget 2002-03
Major demands by various industry associations such as the Telecom Equipment Manufacturers Association (TEMA), Association of Basic Telecom Operators (ABTO), Cellular Operators Association of India (COAI), CII etc include the following:
Reduction of customs duty on telecom hardware items should be as per the original schedule of the IT Agreement of WTO and should not be advanced from 2005 to 2003, as indicated by the Finance Ministry.
Customs duty on telecom equipment like transmission equipment, equipment for broadband network, handsets required for limited mobility services etc. should be waived.
Excise duty on indigenously manufactured telecom equipment should be reduced to 8%.
Indigenous telecom manufacturers should be given the status of deemed exporters wherever basic customs duty on equipment has been reduced to 5% so that they can import their inputs at nil duty.
The telecom sector should be granted industry status to enable it to avail benefits from different authorities like State Governments, financial institutions, etc.
Graded service tax should be levied on telecom services on the principle of ability to pay, with low end users exempted from service tax and high end users asked to pay more. This would facilitate abolition of existing revenue sharing principle and reduce the cost of telecom services.
The COAI has asked for the removal of a 16% Countervailing duty (CVD) on telecom equipment for cellular services like cellular handsets, switching apparatus, base station controllers, etc. Similarly CVD on all telecom equipment for wireless-in-local-loop (WiLL), which are not manufactured in India should be removed.
The benefits of Section 72(A) of the Income Tax Act, 1961 to carry forward accumulated losses, and unabsorbed depreciation in case of amalgamation, should be extended to the telecom services industry.
Telecom software should be treated at par with computer/IT software and made eligible for nil customs duty.
The telecom equipment industry is quite fragmented, with a large number of cable, switching and terminal equipment manufacturers.