Budget 2012 for Indian telecom industry: hits and misses

Telecom Lead India: Indian mobile industry has received
several fillips from the 2012-13 Budget though majority of the demands were not
met. Telecom Lead is presenting key Budget offerings that will positively
impact the industry. We have also highlighted the demands that were not addressed
in the Budget.


Budget to stimulate growth for agriculture, banking and
m-payments industry with development of tier II, III markets.

Telecom towers will be made eligible for viability gap
funding.  Public Private Partnership would help infuse fresh funds in the
tower businesses and thereby, boost the development of telecom infrastructure
in the country. 

Removal of customs duty would allow the OEMs to offer more affordable
handsets and thereby increase the mobile phone penetration in the country.

Proliferation of affordable smartphones would become the key
driver of data consumption in the country, especially in the rural sector.

Proposal to complete Aadhar in 50 districts over the next 6
months will lead to availability of financial services to more people. 

Penetration of banks and financial services in rural India,
presents larger scope for mobile banking and payment service providers.

There will be more adoption of mobile banking technologies. 

The road block is the 2 percent increase in service tax. It will lead to
higher tax attached to mobile phone bills and mobile transactions thereby
affecting the usage of mobile services.

Introduction of mobile-based Fertilizer Management System
will provide end to-end information on movement of fertilizers and subsidies.

The exemption of duty on mobile phone parts will fuel growth
of ancillary sectors such as mobile content development, mobile banking, mobile
advertising etc.

Roll out Aadhaar tablet enabled payments for various
government schemes in at least 50 districts within next 6 months.

Cut in customs duty on memory cards for mobile phones which
while complementing the usage of storage cards will help in increasing the
usage of extensive mobile phones. 

Vodafone tax issue may be re-opened by the government, as
the Union Budget 2012 clarified the definitions of property and transfer. These
two words affected the tax department’s jurisdiction on the Vodafone-Hutch


A cut in taxes on mobile phone brands of Indian origin which
will help the Indian phone makers to compete well with the international

Liberate land usage on which by setting up indigenous plants
the Indian mobile makers can produce more cost effective mobile phones.

Standardization of state tax as given for import along with
access levy’s which needs to be brought down to the lowest slab.

Tax cuts on the import of raw materials which will help in
reducing the production costs of hand held devices.

Rebates for setting up of indigenous plants which will help
the Indian mobile manufacturers in bringing out more value for money products
to empower the telecom boom in the country.

Subsidies for expansion to rural areas

Streamlining subsidy provisioning for usage of renewable
energy sources

Re-investing a portion of proceeds from the upcoming
auctions into the telecom sector growth especially in rural areas

Tax rebates for broadband services

Rationalization of taxes e.g. extension of 80IA benefits to
3G investments, streamlining of various local and national/state taxes

Lowering of taxes on the sector

Infrastructure sector status for telecom business

Deferment of excise and VAT for the minimum period of 5
years for all the Indian product companies and preferential market access
should be mandated for the Indian products.

Accelerating the growth of broadband across the country
should also be the priority of the government.

Abolition of service tax on internet/broadband services
would make such services affordable to masses, particularly in rural and remote


Establishment of R&D corpus to support the R&D and
IPR creation in the industry which will help incentivized the license service
providers to meet the mandated target of purchased of domestic manufactured

of long term capital financing and working capital at competitive interests
rates as are available worldwide (labor + 0.5 percent be ensured.

Income tax exemption for Indian product companies for a
period of 5 years should be provided on the lines for software exports.

Display adequate vision to achieve last mile broadband
connectivity on priority.

Spend on upgrading technology infrastructure in the country
as well as invest heavily in e-governance.

CENVAT credit of central excise duty be made available to
towers and shelters

To exempt from service tax the earnings of distributors from
distribution of telecom services

Appropriate clarification on the applicability of service
tax in Jammu & Kashmir, taking into account the General Sales Tax being
paid on specified services in J&K, so as not to have dual levy of tax on


OFC (Optic Fibre Cables), being a vital component of telecom
infrastructure and a key one for the NTP 2012 objectives, should be classified
under tariff chapter heading 85 attracting Nil rate of basic customs duty

Introduce a new section to deal with the case of deduction
of tax at source by the telecom operators from the discounts offered to

Since the requirement of quoting the PAN number at the time
of taking a mobile connection, as per the Rule 114B(g) of the Income Tax Act
becomes an inhibitor/hurdle for spread of service to low end / rural
subscribers, the Government should delete Rule 114B(g) of the Income Tax Rules

Tax holiday under section 80IA to be restored to support
massive investment which is being made for 3G and BWA services

Tax exemption under section 10(23G) to infrastructure
capital companies / funds investing into telecom companies should also be

Cheaper funding options from state-run banks

Funding from Indian Infrastructure Finance Company Limited (IIFCL) equally extended
to infrastructure based telecom projects

Resource pooling by inter-institutional groups (IDBI, IDFC, ICICI Bank, SBI,
LIC) to ensure speedy conclusion of loan agreements and implementation of
infrastructure projects

Dedicating fiscal, legal and regulatory incentives to indigenous telecom

Reduce customs duty on raw material for manufacture of
telecom equipment, handsets, optical fibre, etc.

Reduce import duty on non-electronic parts for manufacture
of telecom equipment

Incentives for stimulating and mobilizing increased private
sector investments through long-term financing schemes at competitive interest

Service tax exemption on internet and broadband services in
order to lower their costs and achieve the government’s objective to increase
penetration across India


Excise duty exemption to telecom manufacturers for supply in
rural areas

Promoting R&D initiatives

Provide exemption from MAT to registered R&D
manufacturing houses

Income tax exemption for Indian Product companies for a
period of 5 years

Provide Deferred Excise and CST for 5 years along with
Export Credit Facility and Interest Subsidy to Indian Product and Manufacturing

Incentivize global companies for setting up R&D and
manufacturing centers in India through appropriate fiscal and legal benefits

Clarity on tax deduction for expenditure on 3G and BWA airwaves in the year it
was auctioned, taxability of inbound roaming, tax withholding on payments for
interconnectivity charges, tax withholding on discount on prepaid recharge
vouchers, use of passive infrastructure, availability of CENVAT credit on
assets like towers, shelters etc.

Accelerated depreciation benefits ought to be extended to telecom service

Exemption from service tax on license and spectrum fees
after introduction of negative list based tax on services to be continued

Foreign currency amounts received from overseas telcos in respect of
international roaming subscriber using telecom services in India to be
considered as exports not liable to service tax

Budget should help make India a telecom and IT manufacturing


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