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Union Budget 2010: Takes on Telecom Industry

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CIOL Bureau
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BANGALORE, INDIA: Indian telecom Industry, one of the fastest growing market in the world, which also has the second largest user base globally, is not so elated after the Union Budget 2010.

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Except for a few good takes, the Union Budget, on which the industry had high hopes, didn't raise to the expected levels on several fronts.

A peak into what the Budget proposed for the telecom industry. Also, let's hear what the industry has to say on the budget.

Handset imports to be simpler

The Budget proposed to extend the benefit of exemption of Special Additional Duty of Customs (SAD) of four percent on parts imported for manufacturing mobile handsets from July 06, 2010 to March 31, 2011.

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Ambrish Bakaya, director, Corporate Affairs, Nokia India, says: “We would like to thank the government on its proposal to extend the benefit of exemption of SAD of Customs of four percent on parts imported for manufacturing mobile handsets from July 06, 2010 to March 31, 2011. This duty was hitherto refundable on payment of VAT; this step will make the entire process of handset imports much simpler, facilitating better cash flow in the industry.”

Mobile Phones and accessories to get cheaper

The Budget also proposed a tax concession for mobile accessory manufacturing in India. The twenty four percent import duty on components/raw material imported for manufacture of batteries, chargers and other part and accessories has been removed..

“The will help bring more investment in the area to the country and encourage domestic manufacture of parts and accessories. It will help catalyze India’s emergence as a global telecom manufacturing hub, adds Bakaya.

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However, on the other end, Girish Trivedi, deputy director, ICT Practice, Frost & Sullivan, South Asia and Middle East, feels that though the tax concession is a good move, especially since India has been trying to become a destination for handset manufacturing for quite sometime. However, without an extensive accessory value chain it will not be able to compete with traditional competitors like China. This is a step in the right direction, however much more needs to be done.”

Mobile phone rates to fall.

Gary Singh, country head, Obopay India, opines: “The Finance Minister's proposal to reduce mobile phone rates will propel the mobile banking market. With allocating additional banking licenses and capital infusement, it will become mandatory for banks to reach out to villages and include them in the banking system.”

“To reduce operational costs, banks will start looking for additional avenues such as mobile banking and e-banking to promote microfinance and also banking transactions within the country. These proposals will benefit the overall mobile services industry, by developing the local eco-system through opportunities to mobile manufacturing companies, banks and financial institutions,” he adds.

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* Minimum Alternate Tax (MAT) raised from 15 percent to 18 percent.

This would be negative for most of the telecom companies, as they currently paying tax at MAT rate. However, the surcharge for the corporates has been proposed to reduce to 7.5 percent from 10 percent, which will be marginally positive for the company.

However, there were also several other demands which went unheard.

Indian Telecom Industry's unheaded wish list:

Now coming to the unheard and left out wishes that the telecom industry was cashing in upon:(source: Reuters)

Extension of 100 percent tax exemption benefits under section 80IA.

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Unification of tax regime from current differential taxation methods

Reduction in license fee to six percent

Tax holiday for mergers and acquisition activities of telecom companies to be extended till April 2010

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Clarity on 3G Auction timeline

Increase in service tax by 200 basis points

Government to use Universal Service Obligation funds for rural and broadband penetration

Increase in Minimum Alternate Tax from the present 16.5 percent.

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