Budget Series 2018-19 : #5 Impact on Telecom Sector

By TJEF Editor Junitha Johnson

The Telecom Sector is deeply disappointed that Budget 2018 has not addressed any of the key issues of the financially stressed telecom industry that is already plagued by brutal price wars and high debt, upwards of Rs 7 lakh-crore. Quoting Rajan Matthews, director general of Cellular Operators Association of India (COAI) –

 

“The telecom industry is disappointed that none of its key asks have found mention in finance minister Arun Jaitley’s budget. We had sought a reduction in the high levies and taxes, and an urgent intervention for resuscitating the sector, which is currently experiencing its worst financial health and hyper competition,” 

In the past few years, the Telecom Sector has seen considerable reduction in the profitability primarily due to reduced tariffs, increased competition and increase in costs due to spectrum purchases. Further, unprecedented increase in adoption of digital services such as payments, e-governance and entertainment has made further investments in the telecom infrastructure sector a necessity.

In the above backdrop, this sector has been pushed into a wave of consolidation as also increased investments in networks, to keep pace with changes. This has increased the pressure on the already debt laden companies in the sector.

The Telecom Industry’s expectation from the Budget 2018 were high, following are the certain expectations –

  • Clarity on tax treatment of spectrum payment
  • Characterization of telecom services as royalty
  • Amendment to the definition of ‘industrial undertaking’ to include telecom infrastructure service providers
  • Benefit of Investment Allowance should be provided to telecom infrastructure service providers

The salient points of the Budget 2018 with regards to the Telecom industry are as follows: –

  • Custom duty on mobile phones up from 15% to 20%
  • Corporate tax rate cut to 25% for companies with up to Rs 250 crore turnover
  • 1 lakh Gram Panchayats are connected to optic fibre; 5 lakh Wi-Fi spots to be created in rural areas
  • Rs 10,000 crore announced for creation and augmentation of telecom infrastructure
  • Broadband access to over 20 crore rural Indians in 2.5 lakh villages

In our opinion the Budget has not been in line with expectations of the industry. The Government, as per Mathews said the finance minister “had completely ignored” the sector’s four key demands, including the immediate reduction of high and unsustainable levies & taxes, cut in basic customs duty on 4G network gear, clarity on right of way (RoW) related taxation at the state level and the industry’s call for a lower tax rate to 1% on discounts extended to small dealers.

 

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