PMO takes pre-Budget call on telecom equipment

In inter-ministerial discussions held in mid-February, it targeted a ‘‘comprehensive policy to encourage growth of telecom equipment manufacturing in India, encouraging a package of long-term, medium-term and short-term measures, including those related to the tax and duty structure, labour laws, etc.’’

The PMO’s intervention aims at lowering India’s dependance on imported telecom equipment, and may be just the breather the manufacturers want. And by all indications, the PMO is moving at high speed over this, so that accepted recommendations may be included in Budget 2005 itself.

The PMO officials have asserted that the measures agreed upon must be ‘‘vetted by the Infrastructure Committee and suitably included in Budget proposals.’’

The discussions went over DOT recommendations for the telecom equipment manufacturing sector, which include duty exemption on inputs, a one-third license fee rebate for operators using local equipment, a mandate asking PSUs to purchase domestic equipment and compulsory local serivce, repair and upgradation for equipment importers.

In its discussion and background papers, the DoT has said that the sector must get a tax incentive, by way of a 100 per cent tax holiday for ten years to companies with initial or additional investment of Rs 25 crore on plant and machinery and which commit another Rs 25 crore in the next five years.

DoT’s recommendations include a 50 per cent tax holiday for five years to ancillary units investing at least Rs 10 crore, on the lines of policies followed in China and India.

‘‘Since the customs duty will be zero on IT products, there would be no advantage of investing in India unless tax holiday is provided,’’ the recommendations say.

Besides, it asks for exemption to Indian companies manufacturing telecom equipment and components from the dividend distribution tax at 12.5 per cent the 2.5 surcharge and the 2 per cent education cess.

Also discussed were the exemption from R&D cess on technology imports for local assembly, depreciation of 60 per cent on plant and machinery, to be implemented over three years. Currently, the rate is 25 per cent over 10 years.

DoT has also recommended that customs and CVD on cellphones, radio trunking terminals (currently 5 per cent) and fixed wireless phones and fixed wireless terminals (currently 10 and 16 per cent each) to be removed.

It says the customs duty on telecom equipment be removed across the board instead of today’s 0-10 per cent level and CVD be reduced from 16 to 8 per cent.