Subscriptions Drop 60% On I-T Fear

The monthly growth of cellular phone additions has dropped by 60 per cent in the last three months. The drastic slowdown has occurred because the income tax department has been sending notices to cellphone subscribers, feels the cellular industry.

The monthly additions of new cellular subscribers has dropped from 78,759 in December 1997 to 41,088 in January this year and has further fallen to 29,220 in February, according to the data filed by cellular operators before the department of telecommunications. The number in March is expected to drop further.

The income tax department has been sending notices to cellular phone users over the last two months in a drive intended to widen the tax net in the country. Former finance minister P Chidambaram had said at a press conference after the Voluntary Disclosure of Income Scheme (VDIS) closed on December 31 last year that the income tax department would target cellphone subscribers as part of its efforts to increase the income tax payer base.

The slowdown in the rate of monthly additions to the cellphone subscriber base has set alarm bells ringing among cellular service providers in the country. According to sources in the cellular service companies, the number of cellular subscribers in the country has dropped because of a fear psychosis that has set in among potential subscribers.

Says K Vijay Rao, executive director and CEO of Escotel Mobile Communications Ltd: We appreciate the government efforts to widen the tax base. But several of our genuine users are worried of the harassment factor.

The users fear that it (ownership of a cellphone) may be used against them, referring to the strongarm tactics of local tax officials. Why dramatise this? he asks.

There were four parameters that the government had set while taking upon the task of increasing the number of tax payers in the country. These were: ownership of land, a telephone or cellphone, car and overseas travel.

Bemoans a senior cellular executive: Of the four criteria, cellphone ownership is being isolated as a means to target potential tax-payers. None of the other criteria are being actively used by the tax department.

Adds Rao: Many of the (cellphone) users may not fall under the tax net. The average billing in the metros is less than Rs 1,000 and in the circles is less than Rs 800. Even an air-conditioner costs more and the running cost is much more. Why not target AC-owners? Rao is on the executive committee of the Cellular Operators Association of India (COAI).

He referred to the governments efforts to target cellphone users as potential tax-payers as an exercise in killing the golden goose. The industry is a stage when it needs a huge market-building (increasing the subscriber base) effort. And building out the market needs money, he remarked.

Rao compared the efforts of the income tax department to a move by the department of telecommunications (DoT) in January last year to increase the tariffs for calls from fixed-line to cellular phones. It took three months and a telecom regulatory authority of India order to get DoT to reverse the stance. It took us six months to get over the ill-effects of that move (which saw new subscribers shying away from the service), he recalled.

Already the (cellular industry) is reeling under ill-considered government decisions like the recent increase in duty on telecom software industry. For a sector reeling under cut-throat competition among companies, we certainly dont need this, added another cellular CEO, referring to the income tax departments efforts.