Preety Raheja
NEW DELHI: The government is likely to impose a five per cent service tax on
Internet Service Providers (ISPs) in the forthcoming Union Budget for 2001. This
is the first time the government will initiate a move to impose any special tax
on ISPs.
However, the ISPs believe this move will affect their business greatly as
they are already operating on thin profit margins. "Almost all the ISPs are
facing a difficult stage. The extra tax burden will only erode our bottomline,"
said Sampark Online vice president Sarvesh Trivedi.
Moreover, industry observers feel that the move to impose a five per cent
service tax would be counter-productive for the ISPs who only offer dial-up
services. "ISPs which don't offer any services apart from dial-up would be
the worst-hit by the service tax," said Net4India CEO Jasjeet Sawhni.
ISPs also say that the modalities for collecting the tax on a national level
would be a cumbersome task. "Efforts in collecting the tax would not be
commensurate with the amount of revenue the government expects to get out of
it," said Trivedi. "It would defy the very purpose of imposing the
tax."
The recent price cut by VSNL has already pushed private players into a
corner, forcing them to look for alternatives. "Either the buck will pass
on to the consumers or the ISPs will be forced to change their business
models," says Sigma Online regional manager Rakesh Pandita.
ISPs are also enraged with the double standards of the government. "On
the one hand, the government charges no license fee to facilitate the wider
reach of the Internet. But by imposing the tax, it is defeating the very purpose
of this exercise," said Trivedi.
But, some ISPs see this move as a positive sign for the industry. "The
only positive aspect about this service tax is that it will bring in some form
of regulation in its fold," said Sawhni.