DoT proposes abolition of service charge on broadband

12% service tax reason for slow growth of the segment in the country

In a bid to increase broadband penetration, the Department of Telecommunication (DoT) has recommended to the Ministry of Finance to abolish service tax on pure internet/broadband services in the next Budget to make it affordable for the end users.

The high cost of internet, which currently attracts a 12% service tax in line with other telecom services, is one of the reasons for slow growth of this essential service within the country, DoT said in its recommendation for Budget 2013.

DoT has set a target for 175 million broadband users in the country by 2015.

There are just 14.88 million broadband users in India at the end of November 2012, according to data published by Telecom Regulatory Authority of India (TRAI).

On the other hand, DoT has recommended that value added services (VAS) should attract service tax as it needs to be treated as supply of service.

As telecom sector is classified as an infrastructure sector, it should be given all concessions like other infrastructure sectors get. Benefit Linder Section 80 IA should be extended to all telecom services (telecom service providers and providers) i.e. 100% tax holiday for l0 years in a block of 20 years, as applicable to other infrastructure sectors and same should be available in case of merger and amalgamation of telecom services to promote consolidation, DoT has said in its recommendations. Besides, it has asked to remove the sunset clause in section 80 IA for telecom sector.

At present, telecom service providers get 100% tax holiday for five years and 30% rebate in subsequent five years in a block of I5 years in respect of an undertaking providing telecom services. The benefit is available to the telecom service providers who started the services between 01-04-1995 and 31-03-2005. However, telecom infrastructure companies providing towers, duct, dark’ fiber are not covered at present.

To promote usage of smart phones and tablets, the DoT has recommended that the Government should amend the 7(vii) of Rule 3 to exclude the benefit arising on use of Tablets/ iPod/ Smart phone by the employee out of the ambit of perquisite since such devices are nothing but advanced version of laptops/computers only and provide the similar features and used as working tool by the employees.

The DoT also proposed that the Government should allow deferred payment of excise duties for telecom equipments and their parts items ITC HS 8517 and 852560 an interest free basis for a period of five years. Currently, telcos pay about 12% as excise duty on imported items. But there is no customs duty levied on these.

Besides, the DoT has proposed that the Government should declare telecom equipment including mobile phones and its parts as deemed export, and should be given all benefits for exports. Currently most of items are being imported.
To promote manufacturing of telecom equipment, the DoT has recommended 10 years of tax holiday on a block of 15 years on all profits and gains from manufacturing industry including mobile phone industry, its parts and components.

At present, these companies do not get any benefit outside being established within a special economic zone. It has also proposed for tax holiday for technology imports for mobile industry.