Sops on anvil for telecom sector

The government is likely to offer a slew of tax sops to telecom operators, including asking state governments not to levy sales tax on telecom services, seven years of exemption of revenue sharing on revenues from rural subscribers, abolishing withholding tax and rationalising the existing value added tax to fuel growth in the sector.

These incentives in addition to offering much needed respite to operators is also bound to reduce telecom tariffs further. They are also likely to help the country meet its target of 250 million telephone connections by 2007.

According to sources in the Department of Telecommunications, the tax sops would be part of the Telecom Policy, which would be in place by early 2006. In fact, the draft for the policy has highlighted that all states had different policies and rates on sales tax, leading to confusion and disputes.

"With a view to promoting growth and making the services affordable, state governments will be requested not to levy sales tax on telecom services, as there was no sale of goods involved," the draft said.

With regard to withholding tax, it has recommended that this be done away with just as the government had done for leasing of aircraft.

"The government will also consider modifying fiscal policies especially regarding rules on depreciation of telecom equipment, assets obtained under long term leases in order to encourage rapid growth. A rationalisation of the existing service tax and value added tax regimes will also be undertaken to encourage growth," the draft said.

With a view towards promoting rural telephony, the new policy is likely to recommend that the "government allow seven years of exemption of revenue sharing to service providers on revenues from rural subscribers", DoT sources said.

Additionally, the lenders of telecom projects may also be allowed "deduction of gross income by way of interest rather than net income under Section 10 (23)(g) of Income tax Act 1961 for atleast five years, so as to offer them incentives to finance telecom projects at lower rates of interest," the draft said.

The new policy will also see a slew of tax sops aimed at increasing broadband penetration. These are likely to include further cuts in duties and taxes on end-user devices like PCs and also leased line charges for data centres and hosting, DoT sources added.