Union Budget 2011: Telecom industry will feel ignored, says Rahul Kashikar, Senior Tax Professional, Ernst & Young

Rahul Kashikar, Senior Tax Professional, Ernst & Young gives his take on the impact of Union Budget 2011 on telecom industry.

The telecom sector, which has been the centre of attraction for the wrong reasons lately, expected significant tax reforms from the Government in the Budget 2011 to support its massive investment in the past year.

However, not much seems to have been addressed in this Budget. The reduction in the surcharge on corporate tax from 7.5% to 5% will hardly be carrot to an industry which was looking forward to a more broad based change.

More particularly, the industry was expecting at clarity on corporate tax treatment of spectrum charges and the associated borrowing cost along with tax holiday benefits on consolidation. Moreover, extending the cut-off date of 31
March 2005 for availing the tax holiday would have created a level playing field.

Though India has progressed tremendously on mobile service penetration, it has significant ground to be gained on internet connectivity. With no tax holiday for the newly introduced BWA licensees, will this industry be able to replicate the penetration which the mobile industry has so brilliantly achieved ?

Some proposals on the indirect tax front which would impact the telecom industry include:

> Service tax now payable on gross amount charged to subscriber - ambiguity removed

> Credit of duty paid on input or input services used in civil construction not available - will impact telecom infrastructure companies

> Point of service rules have been issued - the provisions itself and ambiguities are likely to impact cash flows of telecom companies as also increase the difficulty in compliances.