budget 2016. Telecom gets a boost for local manufacture

In line with the ‘Make in India’ theme, exemption from basic customs duty, countervailing duty and special additional duty has been withdrawn on chargers, adapters, battery, wired headsets and speakers for mobile phones. This bats for local manufacture by making imports costlier. Correspondingly, to encourage local manufacturing, importduties on inputs that contribute into making of such parts and components have been removed.

Secondly, providing clarity on the interpretation of spectrum, the Finance Minister said assignment of right to use radio frequency spectrum will now be treated as a a service and be liable to service tax. This clarification will go a long way in opening up a market to trade in spectrum, in dispelling controversies and avoiding protracted tax litigation.

To accommodate the growth of smart phones, incentives have been provided for mobile manufacturing in India. According to Indian Cellular Association, 22.5 crore units were imported in 2014, up 20 per cent from the previous year. Domestic manufacturing has been declining.

While these two moves were positives for the industry, there were many unmet expectations, like the waiver of the 0.5 per cent Swachh Bharat Cess on telecom services that was requested. . Clarity on removal of withholding tax on sales of SIM cards and prepaid vouchers by distributors were also expected.

While the 2015 spectrum auctions fetched 1.1 lakh crore, the treatment of foreign exchange fluctuations on overseas borrowing for such spectrum payments, remains ambiguous. A specific clarification on this was expected to go a long way in avoiding unnecessary demands and ensuing litigation.

End result

Spectrum trading can result in consolidation, as any financially stressed operator will find a market for the spectrum it holds to exit. It facilitates operators grappling with inadequate spectrum to get access to this scarce commodity. It also providea a market to trade on the asset, and in price discovery. While this move provides an opportunity for all telecom operators, it will most likely benefit players with a large subscriber base. However, such service taxes incurred are expected to be passed on to customers.