Abolish service tax on broadband services: DoT

To increase broadband penetration by making it affordable for end-users, the Department of Telecommunications (DoT) has proposed the Ministry of Finance abolish service tax on pure internet/broadband services in Budget 2013-14.

The high cost of internet, which attracts 12 per cent service tax, in line with other telecom services, is one of the factors behind the slow growth of the service in India, DoT said in its recommendations for Budget 2013-14. It has set a target for 175 million broadband users by 2015. As of November-end, the number of broadband users in India stood at just 14.88 million, according to data by the Telecom Regulatory Authority of India.

DoT has also recommended value-added services (VAS) attract service tax, as these should be treated as supply of service.

As the telecom sector was classified as an infrastructure sector, it should get the concessions given to other infrastructure sectors, DoT said. All telecom services should get benefits under Section 80 IA of the Income Tax Act — a 100 per cent tax holiday for l0 years in a block of 20 years — as applicable to other infrastructure sectors. To promote consolidation, this should also be made available in the case of mergers and amalgamation of telecom services, DoT said. It also sought the sunset clause for the telecom sector in Section 80 IA be done away with.

Currently, telecom service providers get 100 per cent tax holiday for five years and a 30 per cent rebate in the subsequent five years in a block of 15 years, in respect of an undertaking providing telecom services. The benefit is available to telecom service providers who started the services between April 1 1995 and March 31 2005. However, telecom infrastructure companies providing towers, ducts, and dark fibre are left out of this.

To promote the use of smartphones and tablets, DoT has recommended the government amend 7(vii) of Rule 3 to exclude the benefit on the use of tablets/iPod/smartphones by employees from the ambit of ‘perquisite’, since such devices are merely advanced versions of laptops/computers, provide similar features and are used as tools by employees.

DoT also proposed the government allow deferred payments of excise duties for telecom equipment and their parts on an interest-free basis for five years. Currently, telecom companies pay about 12 per cent excise duty on imported items. However, there is no customs duty levied on these. It also proposed the government declare telecom equipment, including mobile phones and its parts, as deemed exports and offer all export benefits to these.

To promote manufacturing of telecom equipment, DoT has recommended a 10-years tax holiday on a block of 15 years on all profits and gains from the manufacturing industry, including the mobile phone industry and those for its parts and components. It has also proposed a tax holiday for technology imports for the mobile industry.