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Lok Sabha TV Insights: Broadening the spectrum

LSTV Insights: Broadening the spectrum

30/1/2015

Bombay high court, in recent ruling, held that retrospective amendment in income tax law, as per which income tax department was demanding Rs 3200 crores from Vodafone, doesn’t have legal standing. Government has decided not to appeal against this order in Supreme Court. This development is big relief for many domestic and multinational companies (like shell, cairn India, Nokia, Bharti) who were being haunted by so called ‘tax terrorism’ unleashed by IT department. This gives a signal that government will live up to its promises regarding ‘ease of doing business’ and ending up of policy paralysis.

Decision is timely, because soon government will open up spectrum auctions and this will help attracting big ticket investments in telecom sector. Telecom sector in last decade has been posterboy of India’s growth story, but unfortunately, it was marred by corruption scandals and related controversies. By the end of last decade, rock-bottom telecom tariffs were seen. Telecom stock were performing exceptionally well in Indian stock market. Indian companies were keen to invest abroad and MNCs like Vodafone and Telenor were desperate to get pie of Indian telecom market. In contrast, current situation is quite opposite as tariffs are rising, sector is starving of investments, Operators are providing substandard services, Foreign investors are avoiding Indian telecom sector. Consequently, Tax collection from these companies, recruitments by these companies, amount they are willing to pay for spectrum, all have nosedived. But new government’s commitment towards transparent and efficient governance is expected to lease it a new life to the sector.

Telecom forms part of critical infrastructure of the economy. Its development has overspilling effect on whole economy. This is more so at the time when more thrust is given to e-governance, e-learning, e-health etc. Cheap tariffs are in interest of public at large; otherwise more of them will get excluded from potential benefits. Banking network is entirely dependent upon telecom these days as whole range of interbank transfers and consumer interface, is through mobiles or internet. However, government BSNL still remains backbone of the industry, which is accused of providing lousy services.

Apart from this, Spectrum revenue is extremely important non tax revenue for Government. Last year revenues were around 61000 crores, out of which 33% was upfront payment. This is year TRAI’s recommendations for spectrum pricing were overruled by government by increasing reserved prices by 36%. This step was much criticized. Perhaps this was because of suspicious atmosphere around spectrum allocations due to 2G scam. Indian telecom industry is probably most crowded market in the world. Consumer here gets numerous options to choose from. So government can rely on market mechanism (like auction) to get adequate prices. If in case, it gets sold at lower than expected price, companies will be compelled to pass benefits to consumer because of healthy competition.

Overall tax system in India is still troublesome and there is lack of clarity on many expects. There have been little efforts in past one year, but much reform is expected in upcoming budget. Further government should make arrangements to allow spectrum trading.

Finance Miniter has asserted that in country like ours, where quasi-judicial and judicial bodies are quite transparent and impartial, revenues can’t be merely increased by sending Tax demands arbitrarily. Instead, for this business friendly environment is prerequisite.