New Delhi: The department of telecommunications (DoT) has proposed to the finance ministry that tax benefits given to telecom service providers under section 80-IA of the Income-tax Act be extended from the present 15 years by another five years.
Under the section, in the first 15 years of operation, the telcos have to choose a block of 10 years for availing the tax benefits.
In the first five years of this block, they are entitled to 100% exemption on taxable profit; for the remaining five years they get a 30% exemption on taxable profit.
India’s telecom service providers are eligible for tax benefits under this section only if they had started operations on or before 31 March 2005.
The department has proposed to extend this date to 31 March 2010, according to two DoT officials, who didn’t want to be named. The proposal comes ahead of the unveiling of the Union Budget on 26 February.
DoT has also asked that the benefits of the section be extended to the new operators awarded licences and spectrum in early 2008.
These new operators include Etisalat DB Telecom India Pvt. Ltd, Unitech Wireless Ltd and Sistema Shyam TeleServices Ltd.
“We welcome the move. This would greatly enhance business viability of cellular projects and also create a level playing field for all telecom operators who have been issued licences by the government at different times from 1994 onwards till date,” said Johan Lindgren, executive vice-president (finance) at Unitech Wireless.
Section 80-IA aims to provide incentives for investment in capital-intensive infrastructure businesses such as power, telecom and special economic zones.
For other infrastructure sectors such as power, under section 80-IA, companies get 100% exemption on taxable profits for a full term of 10 years in succession. Power companies can choose the 10 years from a block of 20 years.
“The telecom sector has been growing at a high pace compared to other infrastructure sectors and has been significantly contributing to the growth of GDP (gross domestic product) as well,” said a DoT official, who didn’t want to be named because he is not authorized to speak to the media. “It is only fair that the telcos be given the same treatment as other infrastructure firms.”
DoT had made this proposal to the finance ministry for the previous budget as well along with another proposal to allow winners of the 3G auction to set off the bid amount as an expense spread over the 20-year validity period of the third-generation spectrum.
According to a second DoT official, the finance ministry is still looking into the proposal and is likely to approve it. “It would only be fair as the same is done for the existing Rs1,600 crore that is paid for licence to operate telecom services in the country,” said the official, who too didn’t want to be named as he’s not authorized to speak to the media.
The move would be more beneficial to the new telcos as they would typically make losses in the first few years of operation, especially in the backdrop of a tariff war that has pushed down call rates steeply.
“It does not really help the government as the telecom sector is a profitable one and not a fledgling one, which needs this kind of an incentive. This is usually given to infrastructure firms that see profits far later in their operations,” a telecom analyst with a premier consulting firm said on condition of anonymity.
In its pre-budget memorandum to DoT, the Cellular Operators Association of India (COAI) suggested that the annual revenue share part of the licence fee should be reduced to 1%.
Telcos pay between 6% and 10% of their revenue as licence fee to the government based on the area of operations. This includes 5% as contribution to the universal service obligation fund.
COAI also proposed that the tax waiver under 80-IA be given to firms even in the case of mergers or amalgamation. DoT has not asked for this.
“Telecom operators pay taxes and levies amounting to up to 30% of revenue. The present structure of multiple levies should be rationalized,” T.R. Dua, officiating director general of COAI, said in a statement.