Updated with COAI’s pre-budget memorandum.

The General Budget for the year ahead 2009-10 will be announced on July 6th, and prior to the announcement, demands are pouring in to help the digital media and telecom sectors.

The Internet and Mobile Association of India (IAMAI) has asked that online advertisors, online service providers (matrimonial or job sites) and cyber cafes, Common Service Centres (CSCs) be allowed a 5 year moratorium from the service tax net to encourage growth. According to them, this will help grow Online Advertising, allowing smaller advertisers and SMEs reach out to domestic and global markets. (Nikhil adds: In this context, do note that Google India MD Shailesh Rao is the current Chairman of the IAMAI, and Google is likely to benefit most from a growth in advertising from smaller advertisers)

This year, the Information and Broadcasting Ministry has requested the government for a five-year tax holiday for cable TV and DTH providers.

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For newspapers, Ambika Soni, the I&B Minister would like the government to waive the levy of service tax on road and rail haulage of imported newsprint, Business Line said. Considering that newsprint costs are the main expenses for print houses and their rising prices have debilitated many of them, this move would aid many in reducing losses. The ministry has also asked for the reduction of fringe benefit tax (FBT) for print and electronic media from 20 per cent to five per cent, and an exemption from FBT for the film industry.

Seeking to make set top boxes cheaper, Soni has asked that the 4% special additional duty and 8% countervailing duty be removed. The DTH industry has been complaining about the multiple taxes that it pays. To pacify them, the ministry has asked the government to consider consolidating service tax, entertainment tax and value added tax into a single Goods and Service Tax. This does not change the fact that the taxes are still sky high compared to other countries.

The mushrooming animation and gaming firms in the country could get a break with a 10-year tax holiday being suggested, according to Business Standard. The ministry is also proposing the government treats broadcasting, DTH and cable services as part of infrastructure industry for their rapid expansion. This would help telcos as they would be exempted from taxable profits for 10 years instead of the current five.

Update: Cellular Operators Association of India (COAI) has, in its pre-budget memorandum, asked that tax holidays be extended to companies that start offering services by March 2010 instead of the existing deadline of 2005.

Calling the current denial of tax holidays on mergers and amalgamations of telecom firms a “retrograde step”, COAI has said that the current laws make expansion by operators “tax ineffective” and could result in disputes over reorganisation of companies. It has also requested the Central Board of Excise and Customs (CBEC) to ensure that telecom operators are no longer given show cause notices for cell phone towers, which are not excisable.

COAI’s Pre Budget Memorandum (PDF).

PREVIOUS BUDGETS

We decided to look back on what the industry has expected in the past and what modifications have affected the digital media and telecom sectors over the past few years:

Budget 2008

The Wishlist: Last year, the wishlist from the industry was primarily about reducing taxes and levies. Indian telecom players felt they were the highest taxed compared to their contemporaries in other countries – while taxes here ate up 30-40 percent of telecom service revenues, it stands at 5-7% for operators in other Asian countries, ET reported. License fees based on revenue share contribute largely to the taxes.

Other demands included a tax holiday under section 80IA of the Income tax Act that would help new telecom operators. Association of Unified Service Providers of India (AUSPI) wanted the UPA government to abolish the service tax imposed on the telecom companies providing broadband and internet facilities.

USO Fund – CDMA cellular service providers’ association demanded a reduction in their mandatory contribution of revenue towards the Universal Service Obligation Fund, which was set up to help drive rural connectivity in the country. CDMA players asked it be reduced from 5% to 3% of their revenue.

What The Budget Delivered: Chidambaram’s 2008-09 budget reflected a focus on e-governance, with an increase in the allocation to the Department of Information Technology to Rs.1680 crore from Rs.1500 crore in 2007-08 and a new scheme for establishing State Data Centres. A National Knowledge Network was also announced, with an investment of Rs. 100 crore. Instead of reducing handset prices, the duty on mobiles was increased by 1%. Set top boxes received excise duty exemptions for raw materials required for their manufacture. The government introduced Internet telecommunication service under the service tax bracket.

The duty on MP3 and MP4 players was reduced from 10 percent to 5 percent and excise duty on Wireless Data Cards was removed. The gaming sector was affected by an increase in excise duty to 12 percent on all packaged software. The Railway Ministry also announced it would put up 6000 automatic railway ticketing machines, launch booking via mobile phones and introduce smart cards.

Budget 2007

There was no change in the license fees during2007, and the year did not bring in any major fiscal changes for the telecom and digital media sectors. The government only directed the Department of Telecommunications to constitute a committee to study the structure of levies so the various taxes, charges and fees in the telecom industry be consolidated. (From Budget Speech 2007-08).

Budget 2006

The year 2006 saw a provision of Rs 1500 crore for the USO Fund and an increase in service taxes to 12%. It levied an excise duty of 16 per cent and removed the 15% customs duty on set top boxes. Domestic manufacturers sought re-imposition of excise duty at 12% in order to enable them to take CENVAT credit as well as to face competition from imports, which the budget accepted. (From Budget Speech 2006-07).

Budget 2005

In 2005, mobile phones were removed as a requirement for filing of income-tax returns – this move broke down entry barriers for a section of potential mobile customers, helping in improving teledensity, E4M reports various industry persons as saying.

The government pumped in Rs 1,200 crore for Universal Service Obligation  fund in order to increase demand for telephony in the rural areas and help reach the target of 250 million phones. VAT was implemented across all states answering expectations of a more reasonable tax structure and was expected to keep the gray market for handsets under check. There were numerous negative reactions from the industry on the move to tighten fringe benefits tax.
Duty on capital equipment, promoting indigenous manufacturing of telecom solutions was cancelled and the OFC industry too had reason to cheer as the customs duty on optical fibers and optical fiber cables was halved to 10% in the year.