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ISPs may be burdened with 5% service tax

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CIOL Bureau
New Update

Preety Raheja

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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.

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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.

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