BUDGET 2003: Wanted, Waivers!

The ritual of all telecom associations sending a proposal to the Ministry of
Finance for consideration for the proposed budget has been going on for several
years.

Last year, the government did not pay much attention to most of such
recommendations, except for the sundry tax exemption on handsets. This year,
however, associations are hoping a better deal. Most of them are in favor of
zero customs duty for handsets and infrastructure equipment, and rationalization
of sales tax. Costly handsets have been a big entry-level barrier for many
potential subscribers, and hence a deterrent to the growth of cellular services
in the country. While the GSM handset costs have come down to some extent,
selling at upwards of Rs 4,000, entry-level CDMA handsets are still costly. The
CDMA WLL handsets (both FWT and mobile) sell at upwards of Rs 6,000.

If
the government wants to increase teledensity and fuel the growth of wireless
services in the country, it needs to take into account the genuine demands of
the industry and reduce the total duty to zero (basic, CVD, and SAD). Duties are
above 20 percent, which is very high and the government should look into the
matter. High handset duties could have been partially justified only if there
had been large-scale manufacturing activities in the country.

Associations have also called for reduction in duty on infrastructure
equipment, both cellular and basic. The total duty on infrastructure for the
telecom industry is 21.8 percent (basic 5 percent, and CVD 16 percent). It
should be noted that hardly any player has fulfilled the rollout obligation,
especially the VPT obligation. The NTP goal is for achieving 10 percent
teledensity in five years and adding over 75 million new lines in the same time
period. Doing away with duties will spur an increased level of activities, and
increase teledensity.

Cellular
Operators Association of India

The association has suggested the reduction of total duty on infrastructure
equipment and handsets as part of the following:

n The total duty on cellular handset
should be reduced to nil (basic, CVD and SAD) and sales tax rationalized to 4
percen

n All duties (basic, CVD and SAD) on
infrastructure equipment should be done away.

n Total duty on hardware should be
nil. Hardware comprises switching equipment, base station controllers, base
transceiver stations (BTS), network management system, cellular repeaters, BTS
ancillaries, computers for billing and customer services, VMS-hardware, SMS
hardware, transcoders, and BSS text equipment.

n Most of the spares, expansion and
upgradation equipment for MSC, BSC and BTS currently attract duty of 38.74
percent, whereas all new equipment under list 29 attract 21.8 percent duty. This
should be addressed.

n All telecom equipment and
installation material, which presently attract very high duty, should be
included in list 29.

n Cellular services should be taken
out of 1/6 scheme of income tax as the tariff has fallen.

n A lower cost of funding from FIs
would enable quicker breakeven for cellular operators.

n Telecom software being identical
to computer software must be treated at par with IT software, and should
therefore attract nil duty and categorical waiver of custom duty on all types of
telecom software.

Association
of Basic Telecom Operators

The association has asked for customs duty reduction and reduction in
license fees (revenue share) paid annually to a lower level of 6—7 percent (USO
included). Both these measures, according to ABTO, would help basic operators
attain viability, since we operate on cost minus tariffs and pump in the
much-needed financial resources towards rapid network deployment to survive in
the fiercely competitive market.

n Zero-duty regime for CDMA
network infrastructure equipment import would help in cost reduction in network
rollout. Waiver of license fee for VSATs which are used as an access network
(and not for CUG) for extending VPT services.

n Basic duty on fixed wireless
terminals be reduced to zero.

n Duty-free imports on CDMA handsets
should be allowed.

n Waiver of import duty for the
entire project, in terms of all imported items such as hub equipment, antennae,
accessories  and VSAT terminals.

n Waiver of space segment charges in
Ku band obtained from INSAT-3B.

n Waiver of annual royalty payable
to WPC for hubs and VSATs.

n Waiver of revenue share (including
USO contribution) for VPTs installed.

n Arrangement of funds from USO Fund
to cater to capex, which is in excess of Rs 30,000 per VPT and the entire opex.

n Waiver for a period of three
years, of charges to use BSNL infrastructure, and waiver of port charges used
exclusively for VPTs.

n Concessions for import of
microwave equipment.

VSAT
Services Association of India

VSPAI has been pushing hard to get a favorable response from the government.
It may be recalled that VSAT industry got a major relief recently when TRAI
recommended the halving of VSAT license fees.

TRAI has recommended that the annual license fees per terminal for captive
VSAT users be brought down from Rs 16,000 to Rs 8,000. TRAI has also recommended
increasing the maximum transmission data rate from 512 kbps to 2 Mbps for remote
terminals for PAMA/DAMA mode in mesh connectivity. Here are the main proposals
submitted by VSPAI:

l  Modify Section 80-IA (ii)
as modified by Finance Act 2001 to also include VSAT besides basic or cellular,
including radio paging, domestic satellite service, network of trunking,
broadband network and Internet services.

l  Modify the custom
notification No 21/2002 dated 1 March 2001, which allows import of VSAT
equipment only by VSAT service providers to also include system
integrators/contractors.

l  Modify custom classification
under CHT 852520 to allow all VSAT equipment and components to be imported
without a WPC license.

Internet
Service Providers Association

Private ISPs had seen a ray of new hope when Internet telephony service was
allowed, but there are some policy glitches that need to be fixed up so that
they can reap the benefits of that:

n Under the Exemption in Custom
Tariff Schedule, List 22 should be revised so as to include additional equipment
as also extension of the concessional rate applicable on the goods enlisted
there–for at least another two years.

n The current terminology ‘other
radio communication equipment (including VHF/UHF and microwave communication
equipment)’ should be modified to ‘other radio communication equipment
(including VHF/UHF and microwave communication equipment for point-to-point as
well as for point-to-multipoint configurations /usage)’.

n The basic customs duty applicable
on the CPE like VoIP device, modems, DSL modem, cable modem, set-top boxes,
wireless LAN equipment and the customer-end radio communication equipment should
be brought down to a level not exceeding 5 percent. These equipment in the
context of Internet services are akin to the cellular handsets in the context of
cellular services.

n Allow availing of credit against
the service tax paid by them towards input services of at least the same nature,
viz. ‘telegraph’ and ‘leased lines’ for which they anyway pay applicable
service tax to other ‘telegraph authorities’.

Telecom Industry Services Association

The proposals submitted by the association are as follows:

l Currently, it is important that
the volume of subscribers for mobile handsets, be it CDMA or GSM, has to
substantially grow, so that by 2005 indigenous manufacturing of the same becomes
economically viable. It is therefore proposed that customs duty on mobile
handsets of all type be reduced to 5 percent or nil depending on the
rationalization policy being followed by the government.

l In order to justify indigenous
manufacturing of professional telecommunication products, such as telecom power
supplies, repeaters, infrastructure equipment for GSM/CDMA network, switches,
CVD on imports of such products to continue and not withdrawn, so that imports
are not promoted particularly from countries which are dumping their goods into
India.

l For all supplies by indigenous
manufactures to green-field telecom projects, such supplies may be given the
status of deemed exports.

Telecom
Equipment Manufacturers Association

The association has made the following key proposals:

l Inverted duty structure for
telecom products should be rectified. Custom duty on all inputs and components
used for manufacture of telecom equipment should be reduced to zero and the
items wherever they are in dual used, a certificate should be granted by DoT to
the domestic telecom equipment manufacturers, to enable them to import those
dual-used inputs and components at zero custom duty. TEMA suggests that the
existing duty on import of finished telecom equipment may continue at 15
percent.

l Customs duty on all inputs, parts
and accessories (chargers, batteries etc) for transmission apparatus for radio
telephony, radio telegraphy, cellular phones, and other two-way radios be
brought to zero.

l TEMA strongly recommends that the
implementation of ITA-1 calling for zero customs duty on finished telecom
equipment by 2005 may be postponed till such time that the customs duty on
entire components and inputs to telecom equipment is not reduced to zero.

Indian Cellular Association

ICA has demanded complete removal of all duties and levies on mobile
handsets. This, according to ICA, would help dismantle the gray market
completely, besides further bringing down the prices of handsets. The
association also wants the removal of revenue sharing clause for telecom
operators on sale of handsets along with the packaged airtime. This, the
association feels, would "encourage higher acquisition of subscribers"
and "allow operators to buy handsets and subsidize their sale with airtime
to customers, thus substantially decreasing entry costs for the common
man".

India is at a crucial stage from where telecom services are poised for a real
and explosive growth. Budget 2003 will play an important role in deciding the
direction that the industry will take in the coming years. Globally, India has
already come to be regarded as the next big telecom market. Encouraging
announcements in the budget can help make that a reality.

Sudesh Prasad