Date:01/03/2005 URL: http://www.thehindubusinessline.com/2005/03/01/stories/2005030102170400.htm

Back Telecom: Customs relief diluted

Our Bureau

New Delhi , Feb. 28

THE Finance Minister, Mr P. Chidambaram, on Monday announced a slew of initiatives for the telecom sector including exemption of customs duty for items covered under the Information Technology Agreement (ITA) like mobile handsets, reduction in customs duty on fibre optic cable from 20 per cent to 10 per cent and exclusion of mobile phones from the 1/6 scheme of the Income-Tax Act.

The Union Budget 2005-06 has also extended the existing customs duty exemptions on network equipment, which were already being availed by telecom service providers, for an unlimited period of time.

The exemptions were scheduled to expire on March 3. The move will allow operators to continue to import hardware equipment like base stations at zero duty.

The Budget provides boost to local manufacturing through customs duty exemptions on components and peripherals used for manufacturing mobile handsets and network hardware. These items are part of the 217 items listed in the ITA, part of India's commitment to the World Trade Organisation.

In order to balance the duty structure between importers of telecom equipment and local manufacturers, the Finance Minister has imposed a 4 per cent countervailing duty (CVD) on all the 217 items in the ITA. This means that the total CVD on imported telecom equipment will go up to 20 per cent from 16 per cent at present, making imported telecom network dearer.

The 4 per cent CVD also dilutes the impact on handset prices. While the 5 per cent customs duty on handsets has been abolished since it is part of the ITA list, the imposition of 4 per cent CVD would mean only a 1 per cent drop in effect.

The reduction in duty on fibre optic cable would benefit operators such as Bharat Sanchar Nigam Ltd, RailTel, Reliance Infocomm and Bharti Televentures who are rolling out countrywide cable network. The 10 per cent cut in duty would bring down the cost of OFC-based services such as broadband and high-speed Internet services.

However, the tax breaks suggested by the telecom regulator to promote broadband usage has not been addressed.

The Government has increased the Plan outlay for the Department of Telecom to Rs 11,801 crore for 2005-06 (BE) against Rs 9,689 crore during 2004-05 (RE).