One industry that would surely looking forward to the coming Union Budget for some tax sops and succor from the Government to boost its prospects; and not without reason is the telecom industry. During the last decade, telecom services in the country have witnessed strong growth as is reflected by the steady addition to subscriber (wireless) base which now stands at 1,162 million (teledensity of 89.8 percent).
The industry has constantly evolved in terms of adopting newer technologies (2G – 3G – 4G) and expanding its service offerings (voice – value-added services – data – broadband). Consequently, mobile services have not only become integral for an individual, but are also essential for delivery of several services (SMS alerts / notifications, or greater digitisation). And not to mention the fact that they have become an integral part of making India digital.
However there are many concern areas that the industry needs to overcome and government’s support in this will be crucial from a future perspective also. Despite the growth, many rural areas continue to remain under-connected because of commercial reasons. Despite significant efforts towards increasing broadband connectivity in villages under the Digital India Mission, the progress has been slow.
During the last few quarters, the Indian telecom industry has witnessed a phase of turbulence, – intense competition, pricing pressures and decline in revenues and profitability. The cumulative impact of these factors is that in terms of operational performance, companies in telecom space continue to reported weak performance on Y-o-Y basis which is its showing its impact on profitability indicators of incumbents following sharp correction (down 40-50 percent) in realizations of data services even as data consumption continued to grow at a swift pace.
Given the focus of the Government of India (GoI) on increasing the network/broadband connectivity in the country, especially in the rural pockets, the industry needs some incentivization. Network deployment including laying of optic fibre and installation of towers in rural and remote areas need significant funding and removal of operational obstacles including various permitting risks.
Allocation of more finances to boost infrastructure in rural areas, fiscal incentives on domestic network equipment manufacturing and lower revenue share on telcos’ revenues from rural areas are some of the steps that could be initiated.
Talking about the telecom tower industry, the same is also expected to undergo structural changes with a slew of developments in the coming months. Currently the industry with around 4 lakhs towers and around 8 lakhs tenancies is one of the largest in the world. It has 10 organised players (apart from many small tower owners) wherein 74 percent of the portfolio is held either by tower companies promoted by telecom operators, or by telecom operators themselves.
Over the next 1-2 years, there is likely to be a material change in the industry structure with consolidation reducing the number of players to 4-5 and ownership largely held by independent operators.
The telecom services industry has been under stress over the last one year due to high competitive intensity. The same is expected to continue for some more quarters. However at the same time, the operators need to maintain the capital expansion to meet the growing data needs of the population. Thus the industry seeks some financial incentives which can lower costs of equipment or services.
Recently, the Telecom Commission has accepted the recommendations of the Telecom Regulatory Authority of India (TRAI) to relax the current spectrum holding caps.
While this will benefit the participants, the industry seeks fiscal incentives to ease their cash flows. Apart from assembly of mobile handsets in the country, greater emphasis needs to be laid on development and manufacturing of network equipment in the country. This will lead to higher investment and job creation in the country. Policy initiatives for R&D in the same are required to lower import dependence. In addition, tax incentives can also propel domestic telecom equipment manufacturing industry.
Apart from the steps to boost infrastructure creation, increasing network penetration and manufacturing activities, certain taxation issues need to be resolved. First the discounts offered to subscriber identity module (SIM) distributors are currently treated by tax authorities as a commission for agents and accordingly a TDS of 5 percent is at present applicable. The industry has been seeking either removal or reduction in TDS burden on such discounts for long. Second the telecom industry also seeks reduction in various levies including the universal service obligation (USO) charge.
As for the telecom tower industry it is seeking inclusion of telecom infrastructure service providers under section 72A of the Income Tax Act in order to get the benefit of carry forward of business losses in the cases of mergers and amalgamations. It will bring them at par with telecom operators.
The industry is also seeking inclusion of telecom towers in the definition of plant and machinery for the purpose of input tax credit and extension of deduction allowed under Section 35AD of the Income Tax Act to telecom infrastructure firms for investment made on procuring equipment manufactured in India. The telecom towers companies are also looking for relief by seeking abolition of property taxes on telecom towers.
(Source: ETTelecom)
