R.Jayaprakash
Telecom sector is not very happy with the Union Budget 2011-12 presented in the Indian Pariament by Finance Minister Mr.Pranab Kumar Mukherji. The various budgetary proposals (2011-12) which will have impacts on telecom sector are discussed below:
Budget proposals
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Impact
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1
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Minimum Alternate Tax (MAT) increased to 18.5% from18%.
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The lax liability of Telcos will be increased.
MAT: As per Section 115JB of Income Tax Act 1961, if the Income Tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessment year commencing on or after April 1 2001, is less than 7.5% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be 7.5% of such book profit. The rate WAS 18% FOR 2010-11.
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2
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Surcharge on corporate tax reduced from 7.5% to 5%
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The Corporate Tax liability of Telcos will be reduced.
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3
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Receipts from 'Other Comm. Services' such as license fees, spectrum usage charges etc at estimated as Rs. 29,648.33 crore in FY12, which is nearly double over FY10 level.
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Govt may implement the TRAI pricing proposals which will place huge financial burden on mobile service providers.
The usage charges include licence fees from the telecom operators, receipts on account of spectrum usage charges and auction of third generation (3G) and broadband wireless access (BWA) spectrum.
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4
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A plan has been finalised to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years.
Rs 58,000 crore allocated for rural telecom and rural broadband.
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Govt will make more investment in broadband sector. The financial support to rural broadband from Universal Service Fund will increase. More operators may come in this sector. BSNl will also get new opportunities.
Rural Broadband was announced 3 years back. Only 11 Million BB connections were provided by the end of 2010, against the target of 20 M.
Sam Pitroda, advisor to the Prime Minister on information, infrastructure and innovation, who has been asked to oversee the project, favours the formation of a Special Purpose vehicle (SPV) in which BSNL, RailTel, PowerGrid, C-DoT, National Informatics Centre (NIC) and Universal Service Obligation Fund (USOF) are to be co-stakeholders. But a DoT want the project to be implemented through BSNL.
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5
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Plan to build the national knowledge network (NKN) to connect 1,500 institutions of higher learning and research through optical fiber backbone by March 2012.
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BSNL, Reliance, Railtel and VSNL gets additional revenue from leasing their LD digital links for the NKN.
The NKN is a state-of-the-art multi-gigabit pan-India network for providing a unified high speed network backbone for all knowledge related institutions in the country.
The backbone of the network starts from 2.5 Gbps and progressively moves onto 10 Gbps connectivity between 7 Supercore (fully meshed) locations pan India. The network is further spread out through 26 Core locations with multiple of 2.5/10 Gbps partially meshed connectivity with Supercore locations. The distribution layer connects entire country to the core of the network using multiple links at speeds of 2.5/10 Gbps. The end users are being connected upto a speed of 1 Gbps.
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6
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Full exemption from SAD presently available upto 31-03-2011 on parts, components and accessories for manufacture of mobile handsets including cellular phones is being extended
upto 31-03-2012.
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Will help manufacturers of mobile phones.
Special additional duty (SAD) is specified under Section 3A of the Customs Tariff Act, 1975.
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7
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Levy of Central Excise Duty of @ 5% instead of 4% on mobile handsets.
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Will make mobile handsets more expensive.
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8
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Full exemption from basic customs duty is being extended to parts/components required for the manufacture of PC connectivity cable and sub-parts of parts & components of battery charger, hands-free headphones and PC connectivity cable of mobile handsets including cellular phones.
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Will be beneficial to telecom manufacturers who are importing such components.
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9
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Service tax payable on gross amount charged to subscriber
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Will remove the ambiguity in determination of ST.
At present ST on recharge coupons/telephone cards is to be paid by the telecom operator on the net price excluding commission/discount to distributors/marketing agents. There were many verdicts by CESTAT and High Courts in this regard.
Service Tax (Determination of Value) Rules, 2006 get amended: 65(105)(zzzx)] the value shall be the gross amount paid by the person to whom the service is provided by the telegraph authority. Thus in case of service provided by way of recharge coupons or prepaid cards or the like, the value shall be the gross amount charged from the subscriber or the ultimate user of the service and not the amount paid by the distributor or any such intermediary to the telegraph authority. This amendment shall come into force on 01.03.2011
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10
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Credit of duty paid on input or input services used in civil construction not available
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Will adversely impact telecom infrastructure companies. The benefit under Cnvat Credit rules 2004 will be less.
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11
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Point of service rules have been issued
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Will create some confusion for telcos since a service promised to be provided at a future date shall be taxable, before it is actually provided.
Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:
i. Date on which service is provided or to be provided
ii. Date of invoice
iii. Date of payment
Consequential changes have also been made in the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service and also to permit adjustment of tax when service is not finally provided.
Rule 3 enumerates the manner in which the ‘point of taxation’ shall be determined. The basic mandate is that a provision of service shall be treated as having taken place at the time when service is provided. However, since the words ‘to be provided’ have also been used, the taxable event shall be pre-poned in case of future provision of service. In other words, a taxable service, even though promised to be provided at a future date, shall also be taxable before its actual execution.
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12
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Extension of 100% tax exemption u/s 80IA to 10 years, in line with other infrastructure providers; 3G capex eligible for 80IA tax benefits
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Will benefit new license holders and 3G spectrum winners such Bharti, Rcom. Idea etc.
Sn 80IA deals with ‘Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.’
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13
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Extension of tax benefits u/s 80IA to independent tower/infrastructure providers
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Beneficial for tower companies
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