Budget 2000: Hope and Despair

The first budget of the 21st century will herald a new direction for India in achieving the IT superpower status by 2008. Watched with curious eyes by

different industry associations, this budget is of great importance as it will help in multiplying the investor confidence, which is booming due to a good

economic growth and an excellent growth in ISP and Internet enabled 



industries. The last week of February will be crucial as Yashwant Sinha, the finance minister of India will unveil the general budget. 

Industry associations have come with a lot of recommendations intended to provide better facilities to customers,

industries, and government, and help improve the nation’s GDP. The different recommendations by industry associations are enumerated below.

Assocham and TISA Recommendations



Consistency in Customs Duty: The telecom industry which has saved crore of rupees for the government by reducing the equipment prices is today facing extinction on account of inconsistent
tariff policies of the government which were enacted in the 1997-98 budget and have also continued in the 1999-2000 budget.

The customer notification no. 20/99 dated 28 February 1999, is valid till

31 March 2000. This notification is derived from notification no. 51/97 dated 2 June 1997 and no. 23/98 dated 2 June 1998, both valid till 31 March 1999. Under this notification, the telecom operators are allowed to import finished telecom equipment at a concessional rate of 5 percent custom duty plus Countervailing Duty (CVD) at 16 percent. However, if the same equipment is to be

manufactured in India, the local manufacturers have to pay an excise duty up to 16 percent and

sales tax of 10 percent. This excise duty is apart from the customs duty which local manufactures have to pay on import of components.

The table below shows a detailed calculation of customs duty tariff as on date on import of finished telecom equipment and if manufactured in India. One can conclude that imports are cheaper than manufacturing equipment locally.

There should be increase in custom duty on import of finished telecom equipment and reduction in custom duty on import of component for manufacture of telecom equipment, so that there is a clear gap of at least 15 percent plus sales tax of 10 percent.

The government, last year vide notification no. 63/99, dated 13 May 1999, has placed only HDSL in list 28 as eligible for lower custom duty. We would like to reconfirm that Wireless In Local Loop (WILL) which includes CorDECT and CDMA, is being manufactured by a large number of companies in India. It may be recalled that in response to tender floated by DoT/MTNL for WILL various companies committed local production of WILL/CDMA equipment such as HTL with Motorola, Tata with Lucent, Escorts with LG, ITI with Nortel, HFCL with Hyundai, and Fujitsu India with Fujitsu. Further, various companies have also offered SDH and DLC-based on local production to DoT in last

tender.

We would like to reiterate that development of local production of CDMA/WILL/SDH/DLC equipment would not be feasible if these are allowed to be imported as finished equipment with lower duties. In view of this it is in

national interest that WILL, CDMA, SDH, DLC are not included in the list of lower duty.Paging Industry: The present excise duty of 16 percent may be reduced to

4 percent. CVD should also be reduced accordingly. On CBU/SKD, basic

customs duty may be reduced from 



25 percent to nil. The custom duty (surcharge and special additional duty) on pager specific components like LCD, crystals in frequency spectrum allocated for paging, vibrators/key pads, miniature speaker, saw filter, pager special plastic parts. 

Internet Service Providers: Tax holiday under Section 80 1-A of Income Tax Act as has been extended to all the other service providers such as cellular,

paging, basic services, etc. The ISP licensees should also be included under this section. Also, the cut-off date for implementation of the project should be extended at least till 31 March 2001 keeping in view that ISP licences have been issued only few months back.

The import duties on items mentioned in the enclosed list (hardware used by the ISPs using HFC and cable modem as well) which constitutes core items

involved in the communication system, may be considered for granting concessional duty of 5 percent basic duty and CVD of 16 percent.

As per serial no. 177 of customs notification no. 20/99-Cus, dated 28 February 1999 (Lit 31), concessional rate of basic custom duty of 5 percent plus CVD 16 percent is applicable to Network Management System required for closed user’s group 64 Kbps domestic data network via INSAT satellite system in

extended C-Band and the same is available to persons licensed by DoT of the Government of India for the purpose of providing value-added services via VSAT system.

There is a justification for intranet services (value added services) using modem technology and the same may be covered under the above classification so that concessional duty of basic 5 percent plus CVD 16 percent may be available to the item being imported for operation of ISPs.



Manufacturers’ Association of Information Technology (MAIT) Recommendations
IT Taskforce Reports II and III should be implemented immediately to give

encouragement to manufacturers in the IT sector. SAD should be abolished on all IT-input components. The government should set up S-BIT units. Special Import Licence (SIL) requirement for import of PCs was abolished in the new EXIM policy; it should also be abolished for populated PCBs. 

Customs Duty

• Duty on finished goods (84.71) to remain consistent at 20 percent 
• Duty should be brought down to zero percent for parts and components in HSN 8473.30 (excluding populated PCBs); all storage devices in HSN 8471.70; all ICs, stepper motors in HSN 8501.10; colour graphic display tube for colour monitor with or without deflection yoke in HSN 8540.40;
• Communication equipment such as modem, router, etc. (HSN 85.17) should attract the same duty as 84.71, i.e., the duty should be reduced from 
  
  
  
  35 percent to 20 percent.
• Unrecorded magnetic tapes and storage media to attract same duty as floppy diskettes
• Specified goods for setting up Internet services should be permitted for imports at 5 percent duty as in case of cellular, basic, paging, VSAT, and radio trunking projects
  
  
  
  Excise Duty: There should be uniform excise duty on all IT/electronics products and their parts and components at 8 percent from the present duty of 16 percent.Sales Tax: The central sales tax to be gradually phased out to zero but
  presently it should be 1 percent.Depreciation: 100 percent depreciation in first year for all IT/electronics products. User to be given flexibility in the method of depreciation.
  
  
  
  Income Tax: Benefit of Section 
  
  
  80-IA should be extended to Internet 
  
  
  Service Providers.
  
  
  

  
  
  
  
  Exim Policy

  • Clearance of all IT/electronic goods based on “self-declaration”
  • Removal of SIL on populated PCBs 
  • Fixation of DEPB rate for dot-matrix printers
  • Export/trading house status holding companies under EOU/EPZ/EHTP/STP should be exempted from requirement of bank guarantee as is in duty exemption schemes/EPCG. 
  • Removal of cap on depreciation of IT equipment in the handbook of procedure. Currently the limit is 90 percent.
  • DTA sales entitlement should be made transferable as in SIL.

  Indian Paging Services Association (IPSA) Recommendations
  
  
  
  As the pager is targeted to the lower section of the society, the duties on pager should be brought to a maximum of
  5 percent and if possible preferably to zero percent. Paging infrastructure, which presently has a custom duty of 28 percent and components which have a duty of 51 percent, should be brought down to zero percent.
  

  Mobile Trunk Radio Operators Association (MTROA) Recommendations
  
  
  
  Reduction in customs duty from a basic customs duty of 25 percent and CVD of 16 percent to 25 percent. According to 81-A government notification, all telecom services come under infrastructure status but the financial institutions do not recognize it. Hence, the radio trunking services should have complete infrastructure status.

  Telecom Equipment Manufacturing Association (TEMA) Recommendations
  
  
  
  Immediate implementation of IT Action Plan II on development, manufacturing, and export for IT hardware by national taskforce headed by the Prime Minister. Withdrawal of concessional duty vide custom notification 20/99
  serial no. 174-179 which stands at 5 percent presently.
  

  Rationalization of sales tax from 12 percent (as it is put under the luxury category) to 4 percent.

  In order to give incentive to the telecom service provider for purchase of domestically manufactured equipment it is proposed that the government may set up a Telecom Finance Corporation to provide finances at international rate of interest to the operators for possessing indigenous equipment. Setting up of Telecom Export Council on the lines of other export councils for boosting up export of telecom equipment in the country would include from providing technical assistance to getting approval from the national network of the recipient country.Internet Service Providers Association of India (ISPAI) 
  
  
  
  Recommendations ISPs should be granted infrastructure status at par with other telecom services. The equipment used in setting up infrastructure like basic ?? servers, routers, switches, and modems should have a basic custom duty of 5 percent and not 35 percent which is charged presently.

  Cellular Operators’ Association of India (COAI) Recommendations 
  
  
  
  Income Tax: Full benefits of Section 10 (23 G) to be available to all the
  cellular operators thereby making it easier to raise infrastructure funds. Quantum of tax relief under section 10 (23 G) should be on the gross interest income and not on the net income helping
  
  companies to retain funds for business expansion. Section 10 (23 G) to be amended to include individuals/HUF/other corporate entities. Cellular projects, like other infrastructure projects, involve high investments and low returns in the initial years, and therefore, like other infrastructure projects should be exempted from MAT.
  

  Customs Duty: Duty on telecom hardware like base station controllers, network management system, cellular repeaters, BTS ancillaries, computers for billing and customer services VMS hardware, SMS hardware, transcoders are at 22.38 percent (inclusive of CVD at the rate of 16 percent). COAI feels that none of these equipment are manufactured in India. It is proposed that countervailing duty of 16 percent be removed.

  Cellular handsets which have a present duty of 47.9 percent (inclusive of 16 percent CVD) should be brought down to 10 percent (with nil CVD).

  Telecom software being identical to computer software must be treated at par with computer software and should, therefore, attract nil duty.