Tax from Telecoms in India to More Than Double by 2010

Service tax contribution from India's telecom sector alone to exchequer is likely to grow by 128% to touch about Rs. 16000 crore (US$3.8 billion) by 2010, particularly when it has been established that 1% growth in number of telecom subscribers leads to a 1.93% growth in its contribution to the service tax revenue to central government, according to Associated Chambers of Commerce and Industry of India (ASSOCHAM).

However, percentage share of telephone in total service tax which use to be 48% in 96-97 would come down by at least 1/3rd to less than 15% by 2010 as by then service tax basket would have grown to over 140 items from 3 services in 1996, without adversely effecting telecom services contribution to exchequer because of the fact that number of telephone subscribers base that use to be 140.32 million in 2005-06 and touched about 210 million in 2006-07 before growing at the projected level of 350 million by 2010, adds ASSOCHAM analysis.

The analysis condensed in ASSOCHAM report clearly seeks removal of any particular cap be it 49% or 74% for foreign direct investments, particularly in telecom sector as it has been proved beyond doubt that as a result of openness in Indian economy, the performance of telecom sector has been not only magnificent but outstanding too, said Mr. Dhoot.

Mr. Dhoot also added that percentage share of telephone in total service tax which was 48% about 10 years ago had come down to about less than 19% in 2006-07 as currently 106 services are in the service tax basket for taxation purpose. However, that would not mean that the contribution of service tax to exchequer from telecom sector would decline as this is the only sector which has been growing at a speed which would fetch larger number of revenues to government.

The growth of telecom sector to a large extent is also attributed to the significant reductions witnessed in the tariffs for international and domestic links, which have made telephone services, including mobile telephony affordable to consumers.

Data on the variables for the given time frame reveals that there exists a direct positive relationship in the number of telephone subscribers and the total service tax revenue collected from telephone. It may also be observed that not only is this relationship positive but also exponential in nature. As the number of telephone subscribers grow, service tax revenue from telephone grows exponentially."

Posted to the site on 23rd April 2007