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Phone tax spooks operators

New Delhi, March 24: Legal battles have riven the telecom industry. Paradoxically, however, telecom operators are closing their ranks to fight a bigger enemy — cash-strapped states that are preparing to heft a tax axe that will hurt companies and telephone users.

At issue is the move by Uttar Pradesh, Tamil Nadu and Punjab (which announced the measure in its budget today) to slap a 12.5 per cent tax on telephone rentals and pre-paid SIM cards. Karnataka, Madhya Pradesh and Delhi have also devised a similar measure but have been trammelled by stay orders obtained by the telecom operators from the respective high courts.

The telephone tax move has rattled industry — and it plans to press for a judicial review of the move by these states.

For telephone customers, it’s a worrying time because if the move passes muster in one state it will be slapped by the others, given the state of finances in the deficit-ridden, fiscally-imprudent state governments.

If that happens, the gains telephone users stand to make when the new telephone tariff regime kicks in on April 1 would be wiped out by a telephone levy slapped by the states.

The imposition of a telephone tax is part of the revenue-raising methods that states have come up with to offset the revenue losses they will suffer when the value-added tax (VAT) regime comes into effect from April 1.

Imposition of telephone tax in the six states is really a double whammy for subscribers since it comes on top of the Centre's move to raise the service tax on phones in the budget to 8 per cent from 5 per cent earlier.

While the telephone users in Delhi, Madhya Pradesh and Karnataka may be able to avoid paying the tax for sometime, those in UP, Punjab and Tamil Nadu will have to fork out more on their telephone bills.

Sunil Mittal, group chairman of Bharti Enterprises, said: “This is unlikely to benefit consumers and we expect huge opposition to this move. It will be a burden that the customers will not like to accept.”

Telecom operators fear that the telephone tax will seriously undermine the objectives of the new tariff regime aimed at striking a balance between affordable telecom services and the growth of the telecom industry.

Bharat Sanchar Nigam has already prepared a review petition against the Supreme Court order of February 4 that allows the state governments to impose a telephone tax.

Both private cellular and basic telecom operators have supported BSNL’s move.

T.V. Ramachandran, director general of Cellular Operators Association of India, said, “It is against the government's policy of providing affordable service.”

S. C. Khanna, secretary general, Association of Basic Telecom Operators, said: “The whole industry is upset about these taxes.”

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