The Telegraph
Since 1st March, 1999
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Call to keep mobiles off tax returns

Calcutta, Jan. 30: The cellular lobby is at work again. With less than a month to go before finance minister P. Chidambaram presents his fourth budget, pressure is mounting on the mandarins at North Block to drop mobile handsets from the list of six items that make it mandatory to file income tax returns.

According to the one-by-six scheme framed under section 139(1) of the Income Tax Act, 1961, it is mandatory for persons owning cars, club membership, credit cards, house, mobile phones and travelling abroad to file tax returns.

The Cellular Operators Association of India (COAI), Indian Cellular Association (ICA) and the Telecom Regulatory Authority of India (Trai) have suggested that the government remove mobile handsets from the list, thus making it accessible to a wider section of people who otherwise would not come within the tax net. The industry has been asking for the removal of the mandatory filing clause for the past three years.

This time the industry believes it has a stronger argument to lobby for such a concession. Last September, India joined a super league of nations that have more cellular subscribers than landline users. In the quarter ended December, there were 3.35 crore cellular users in the country.

Earlier, land phones used to be covered by the one-by-six criteria. But it was taken off the list in the budget for 2002-03. Basic telephone subscribers and wireless-in-local-loop (WiLL) customers were no longer required to file returns though GSM cellular users had to do so.

The industry is arguing that those distinctions have since blurred with the government moving towards a unified licensing regime. Just two weeks ago, the telecom regulator submitted its recommendations on the unified licensing regime to the communications ministry. Once unified licensing comes into force (widely expected by the middle of this year), the service-specific licensing regime will end.

The cellular players believe that in the light of these developments, it does not make much sense to have one set of tax rules for cellular phone users and another for landline and CDMA phone subscribers.

In its proposals for the 2005-06 budget, the COAI has said the one-by-six criteria will stifle growth of the cellular industry as it discourages low-end and marginal users from availing of the service. 'Cellular tariffs have plummeted to as low as 44 paise per minute. Further growth of the service will come from low-end users,' states the COAI proposal.

'Handset prices have also dropped sharply with low-end models priced at Rs 2000, thus making them affordable to a large section of the society. If mobile handsets are retained on the one-by-six list, the government will be consciously attaching a premium tag to the service,' it argues.

Trai member D. P. S. Seth said the regulator has included the demand among its budget proposals. The telecom regulator feels that with cellular mobiles driving the teledensity in developed countries, the scheme hinders market growth.

ICA national president Pankaj Mohindroo said, 'This has been a long-standing demand of the industry. The clause does not serve any purpose as a large number of users do not fall under the tax net.'

Currently, mobile penetration in India is a mere 4.7 per cent compared with 23.6 per cent in China. It is estimated that an addressable market of 120 million users exists in rural areas, where there is no coverage at present. Further, the associations feel that there is no loss of revenue to the government as cellular operators ask subscribers, both pre-paid and post-paid, to submit verifications before taking a connection.

Last July, Rajan Mittal of the Bharti group had lobbed this question at Chidambaram at a post-budget interaction with the industry. The minister deftly dodged the question. There are no signs to indicate that North Block will be more receptive to the demand this time even though the principles of equity seem to be in favour of the cellular industry.

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