Consequent to the Government of India policy and regulatory framework, India became the second largest mobile market with over a billion subscribers at the end of Feb 2016, with 608.4 million urban subscribers and 443.5 million rural subscribers. The overall Tele density reached to 83.6 per cent, with Urban Tele density at 154 per cent , and rural Tele density at 51 per cent in March 2016. Besides rolling out of nationwide optical fiber cable network to connect all panchayats at village, blocks and districts levels, the Government of India has planned to develop100 smart cities.
Along with rapid increase in subscriber base, there have been substantial investments in the sector. Foreign direct investment limit is now 74 per cent in Basic, Cellular, Unified Access Services, National/International long Distance, V-Sat, Public Mobile Radio Trunked Services, Global Mobile Personal Communications Services and other value added services, subject to certain conditions The private access providers had 91 per cent market share of the wireless subscribers, whereas BSNl and MTNl, the two PSUs, held the remaining 8.7 per cent as of March 2016. In case of wireline subscribers the two PSUs had 83 per cent market share, leaving 17 per cent with the private service providers.
Digital India has a potential of $1 trillion business opportunity, encompassing telecommunication, IT, and electronics manufacturing sectors. In financial year, 2015, India had 7.6 per cent global mobile smart phone subscription with 11.40 crore units out of a total 30crore handset units. The telecom sector is projected to grow more than 50 per cent by 2020, enabling mobile banking, e-commerce, mobile health, e-agriculture and other varied services to small and medium scale businesses. In order to develop the sector to its optimum potential, some of the issues that need to be resolved are discussed as under.
Needed Rationalisation of Multiplicity of audits
Today, Telecom Service Providers (TSPs) go through multiple audits by DoT, TRAI, CCI, SEBI and CAG, leading to significant costs. TSPs are required to pay a percentage of their Adjusted Gross Revenue (AGR) as license fee instead of the erstwhile per subscriber based license fee. It is important to define clearly Gross Revenue (GR) and Adjusted Gross Revenues (AGR) for the computation of license Fee (lF) to avoid ambiguities.
Needed Reforms in Direct and Indirect Taxation Issues
The Indian telecom equipment sector constitutes 6.6 per cent. Benefit under Section 80IA of the Income Tax Act, 1961 is available to an undertaking providing telecommunication services, basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband and internet services.
CENVAT credit is refused on goods used for mobile towers and its parts used for providing telecommunication service as the goods under consideration neither qualify as ‘capital goods’ nor ‘inputs’ under the credit provisions. This ambiguity needs clarification. The Ministry of Commerce and Industry has recommended for removal of MAT and Dividend Distribution Tax (DDT) on SEZs but is yet to be implemented.
In a recent legal case between the State of Punjab and Nokia India Pvt ltd, it was decided by the Supreme Court of India that a mobile phone battery charger is an accessory to a phone and not a part of the cellphone, thereby subjecting it to a higher tax rate. The authorities have sought to apply this judgement retrospectively with effect from 1 April 2005. Furthermore, lack of a uniform rule has led to differential VAT rates that varies from 5 to 14.5 per cent on handsets and mobile chargers across different states. Given that a mobile phone battery charger is usually sold together with the handset and is an essential component for functioning of the handset, it is advisable to classify the mobile phone battery charger together with mobile handsets for levy of VAT. Relaxations under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 (IGCR Rules, 2016) have been introduced vide Union Budget 2016 replacing the earlier Rules notified in 1996, with an intention to enhance ease of doing business.
Implementation of E Waste Management Rules
India is the fifth largest producer of e-waste in the world, producing about 18.5 lakh metric tonnes of e waste each year with telecom equipment alone accounting for 12 per cent. The Ministry of Environment, Forest and Climate Change has notified e-waste management rules, 2016, by which producers are covered under Extended Producers’ Responsibility (EPR). The rules prescribe waste collection target of 30 per cent waste generated under EPR for the first two years, progressively going up to 70 per cent in the seventh year of the rule.
The unorganized sector in India is estimated to handle around 95 per cent of the e-waste produced in the country. Given the huge user base and vast reach of telecom in India, it is desirable that e-waste collection targets are implemented in a phased manner. The Ministry has issued a notification which restricts import of capital goods for the electronic industry on the grounds that these could lead to e-waste. Importers have to take authorisation from the Director General of Foreign Trade (DGFT) before shipping products prescribed under the restricted category. As per the ministry’s draft guidelines, manufacturers are permitted to import products which are less than three years old and have a residual life of at least five years.
Ease of Doing Business
There is need to enhance ease of doing business through procedural simplifications in registration, certain reforms in statutory levies like VAT, excise and NCCD to compensate against the rising input costs and maintain global competitiveness. Customs duty on import of equipment and for manufacturers in SEZ’s need to be rationalised. Preferential Market Access (PMA) policy may be revisited to create a level playing field for global and domestic equipment manufacturers in the country and imposing Anti Dumping Duty (ADD) payments and further smoothening of customs clearance process.
(The writer is former Director General, CAG of India)