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Union Budget 2016-17 highlights for telecom sector

February 29, 2016
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Under the Union Budget 2016-17, the plan outlay for Department of Telecommunications (DoT) has been set at Rs 58.65 billion. This includes Rs 0.17 billion for regulatory bodies (Telecom Regulatory Authority of India General Fund and Telecom Disputes Settlement and Appellate Tribunal); Rs 27.55 billion under the Universal Service Obligation Fund; Rs 27.10 billion for defence spectrum; Rs 3.03 billion for DoT projects and Rs 0.8 billion for support to Indian Telephone Industries Limited. The plan outlay under the Union Budget 2015-16 for DoT was Rs 52 billion; which has now been revised to Rs 57.95 billion.

Further, as per the Budget, the government expects a revenue of Rs 989.95 billion from spectrum auctions, license fee and one-time spectrum charges in 2016-17, an increase of 76 per cent from the revised estimates of 2015-16. The government had budgeted Rs 428.66 billion from the telecom sector for 2015-16 and has now revised it to Rs 560.34 billion.

The other key announcements made in the Budget are as follows:

  • The Finance Ministry has clarified that the assignment of right to use radio frequency spectrum will not be taken as a sale of intangible good and therefore will be liable for service tax.  Earlier, there was ambiguity regarding the fact that whether the spectrum trading deals come under the ambit of service tax or are liable for levy of value added tax. With service tax being applicable, a company paying the tax will get the benefit of it in its tax liability, which will ultimately be credited back. The move is expected to induce more spectrum transactions.
  • The Finance Ministry has proposed a new dispute resolution scheme in cases of retrospective taxation. The scheme allows tax arrears to be paid in lieu of interest liabilities in cases of retrospective taxation. The proposal is expected to help resolve Vodafone’s Rs 200 billion tax dispute with the Indian government.  
  • The Finance Ministry has proposed a digital depository for school leaving certificates, and school and college mark sheets. This would provide a platform to safely store these documents as well as provide for easy retrieval. This digital depository may also be linked with the person's Aadhaar number given that there already is a digital locker linked with it.
Following are the views of industry stakeholders on the provisions made for the telecom sector in the budget:
Prashant Singhal, Global Telecommunications Leader at EY: Telecom sector had high expectations from the Finance Minister, since several existing tax provisions were exerting additional burden on the industry and required urgent revamp.  Proposals introduced in Finance Bill 2016 is a mixed bag for the telecom sector.  While clarification introduced in taxation of spectrum fee and applicability of BCD may result in increased financial burden for the ailing telcos, the same may reduce future litigation.  Withdrawal of customs duty exemption on battery, chargers & headsets and Introduction of lower excise duty regime for routers, modems and other CPE equipment is in line with the government focus on local manufacturing and digital India.  Reduction in rate of withholding tax on commission to 5 per cent is a welcome step for the telecom industry.
Pankaj Mohindroo, National President, Indian Cellular Association: The differential duty regime available for promoting domestic mobile handset manufacturing in India has now been enhanced and extended for Mobile handset adapters / chargers, batteries and headsets / speakers of mobile handsets for supply to mobile manufacturers. The domestic manufacture will attract only 2 per cent excise duty while imports will face 29.441 per cent duty, giving a 27.441 per cent protection to domestic manufacturing vis-à-vis importers. Further, a broad category of inputs including parts, components and sub-parts has been exempted from excise as well as countervailing duty of customs when used for manufacture.
Rahul Agarwal, Managing Director, Lenovo india: We are happy that the budget establishes a strong emphasis on technology in almost all the development areas highlighted by the Finance Minister. Technology has been  recognized as an important enabler across initiatives ranging from agriculture to skill development to PDS to public procurement. Also, the announcements on the Rural Digital Literacy and the Digital Saksharta Abhiyan are positive strides to bolster the ‘Digital India’ vision. ‘Make in India’ and ‘Digital India’ remained important items on the agenda in the Budget this year. The changes in the customs and excise duty rates on components & sub-components reaffirm the ‘Make in India’ vision of the government. This will help in building a robust component ecosystem in the country, which is very important for becoming a manufacturing hub. While the government’s focus has remained on giving an impetus to domestic manufacturing, we were hoping to see the duty differential policy being extended to PC manufacturing but could not happen. We will have to engage further with the government in this area.

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