ISPs seeks exemption of customs duty

The potential for Internet usage is immense with ongoing developmental initiatives within the country as a developing economy at a high growth rate. This becomes evident on the back of growth in wireless and wire line connection in country. The total wireless subscribers (GSM, CDMA & WLL (F)) base stood at 415.25 million at the end of May 2009, which shows a growth of 49% on y-o-y basis.

However, as per Internet Service Providers Association of India Statistics, Internet subscription has recorded growth of 5 per cent to 12.85 million in quarter ended December 08 as against 12.24 million in September 08. Besides above, there are 101.10 million wireless data subscribers by the end of December 08. According to the latest statistics broadband connections have reached 6.4 million mark by the end of May 09 - a modest improvement of 54 per cent on y-o-y basis.

With the introduction of 3G & BWA and nearly 101.10 million potential wireless broadband subscribers, the IP based services over wireless are bound to increase broadband growth multi-fold. The top five internet Service Providers like Bharat Sanchar Nigam, Mahanagar Telephone Nigam, Bharati Airtel, Reliance Communications and Sify Technologies constitutes around 86 per cent of the total market share. To make the Industry run into a growth oriented profit making, ISPAI has forwarded its recommendations for Union Budget 2009-10. The highlights were as follows:

• Provide 100 per cent depreciation on computers, Broadband Customer Premise Equipment including set top boxes, modems, wireless Radios and routers within the first year. Full depreciation should be provided on any hardware/system which is been installed for Monitoring / Security purposes.
• Exempt Custom Duty on Goods imported by Internet Service Providers for the purpose of providing Internet/Broadband Access.
• To boost investments in modern infrastructure, consider re-introducing the section 10(23)(g) of the income Tax act, so as to provide tax benefits to ISPs investing in Wireless Infrastructure, such as WIMAX, etc. whereby income/dividends from such Wireless Infrastructure being invested in become exempt from Income Tax for a period of 5 years.
• As applicable in the case of Service tax, Set off should be available to ISPs on AGR since ISPs pay tantamount to double taxation.
• De-link the auction prices of 3G & BWA Spectrum and provide equitable access of BWA spectrum to ISPs at a fair and affordable price.
• So as to increase the penetration, the association has asked for some measures like: extending tax exemption to all registered and Licensed ISPs for another 5 years and thereafter 30% deduction for another five years; extending support to individuals, by way of allowing deduction from personal income tax, to individual IT assesses, the cost of one PC, whether Desktop or Laptop for one computer per household, or a period of 5 years; All corporations, either public or private, should be allowed to give Rs. 9600 per annum allowance to employees for broadband services access at home; and Waiver by way of a legislation of ROW charges for the next five years.

On the Service tax front, it recommends Five-year holiday from Service tax on Internet/ Broadband.

Encourage by providing easy loan facilities to un employed youth in small towns, rural or semi rural areas to establish more cyber cafe; and include as part of Central / stating Rojgar Yojna.

Classify Internet/Broadband Services as 'Service' but not  'Goods' and waive off VAT/ Sales Tax along with Entertainment Tax, levied on Broadband subscriptions and entertainment services.

Outlook

The target of the Government to exceed TRAI - 20 million Broadband subscribers & 40 million Internet Connections by the year 2010 was unfulfilled and require a long way to go. India is still far short of Broadband penetration especially in small cities / remote and rural areas.

Tax benefits for ISP's will boost the investment opportunities with superior technology and encouraging youth will spread internet to the rural areas and towns. Along with this, unrestricted Internet telephony will provide an excellent opportunity for India to bridge the digital divide, especially in rural and remote areas as well as to rural and migrant workers in other areas. It will have a positive impact on development of telecom services and also increases opportunity for higher foreign exchange through ITES.