KEY DRIVER: A scene at a call centre in Gurgaon near New Delhi. — PHOTO: V. V. KRISHNAN

NEW DELHI: The telecom and information technology sectors have always found crucial mention in every Finance Minister's budget papers since the opening up of the economy. This year too Union Finance Minister P. Chidambaram may announce some sops for both sectors, aimed at improving tele-density, increasing IT penetration and making India the hub of electronic manufacturing.

Having consistently registered over 30 per cent growth annually for the past few years, leading to both direct and indirect employment generation, both sectors occupy an important place in the Government's ambition to achieve nine to 10 per cent GDP growth during the XI Plan as they supplement the progress of other crucial sectors.

The Centre has already taken a step forward in this direction by announcing the Semiconductor Policy that will fuel growth of both sectors as foreign direct investment worth over $10 billion is expected from this sector alone. The industry is now hoping that Mr. Chidambaram will address some of its other concerns too.

But first, what is in store for the common man? Despite the fact that the telecom industry is contributing over Rs. 5,000 crore as service tax thanks to the spurt in the subscriber base, people may have to shell out more as the budget may increase the rate from 12 to 14 per cent.

The phone subscriber base, including mobile and fixed line, recently crossed 200 million and five million new mobile connections were added in January alone. With the usage of mobile and telecom services showing an impressive growth, for the Finance Minister this sector has become an extremely attractive source of revenue.

In a recent report, the Associated Chambers of Commerce and Industry of India (Assocham) estimated the service tax from the telecom sector to increase by 160 per cent to Rs. 13,000 crore by 2008. This will be made possible by the ever-growing subscriber base which is expected to cross 280 million by the end of next fiscal.

Despite the fact that telecom services are the largest source of service tax to the Central Exchequer, the Government is unhappy with the taxation provisions governing the sector.

The reason is that while growth is around 30 per cent, tax revenue is growing by around 10 per cent. Irrespective of the fact that the hike in service tax on telecom services will severely hit the middle-class that is already feeling the heat of over 6.5 per cent inflation, the Government wants service providers as well as consumers to pay more.

Wish list

The wish list of the telecom industry is long. Companies want Mr. Chidambaram to first rationalise various tax and duty structures to enable telecom operators to improve their network and ensure better services in newer areas, particularly rural India. The Cellular Operators Association of India (COAI) feels that multiple levies need to be replaced with a single-point levy to keep taxation simple and transparent. Replacement of multiple bank guarantees with a single guarantee will enable the industry to mobilise funds for expansion.

The industry also wants rebate on the Central Value Added Tax (CENVAT) on maintaining networks and providing services in rural areas, reduction in TDS on interconnect charges and rationalising the fringe benefit tax from 20 per cent to five per cent levied on expenses incurred by employees visiting various areas to set up and strengthen the telecom network.

It is also seeking the abolition of the four per cent additional customs duty on Information Technology Agreement (ITA) bound items (including mobile) and their inputs. Similarly, the industry wants rollback of the eight per cent countervailing duties on packaged or canned software imposed in the last budget as this will reduce costs and help improve technology through better imports, an issue that is of concern to the IT sector also.

IT and ITES

The fast-growing IT and IT-enabled services (ITES) sector is one industry that has always been favoured by finance ministers, be it by way of tax holidays or cut in duties on computer and its peripherals. Further lowering of the excise duty on IT hardware and electronics to eight per cent, so that the total tax levy can be brought on a par with China's 17 per cent against India's 20-30 per cent, will make computers, peripherals, mobile phones and other electronic items cheaper. This will help in improving IT penetration and boost e-governance, e-commerce and e-business.

Like the telecom sector, the IT sector is looking forward to rationalisation of tax and duty structures. In fact, the Manufacturers' Association of Information Technology (MAIT) not only wants the status quo with respect to import tariffs and local levies, but is also seeking a special status for the industry for abolishing the Central Sales Tax in one go, as it will boost hardware manufacturing.

How many of these prayers will be answered and what benefit the common man will get, will unfold when Mr. Chidambaram tables his budget proposals on March 28.

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