The Department of Telecom (DoT) has recommended a 10-year tax waiver, lifting of freeze on telecom major Nokia's assets, rationalisation of value added tax (VAT) rate, interest subsidy and a host of other incentives to be doled out in the coming Budget (2015-16) to give a huge boost to domestic production of mobile devices and telecom equipment.
A note, prepared by Shashi Ranjan Kumar, joint secretary (administration) of the investment promotion cell of the DoT, says these reliefs would go a long way in propelling the telecom sector, and realising the Union government's Digital India and Make in India programmes.
The note suggests a 10-year tax holiday for new mobile and tablet manufacturing units. Currently, there is no income tax incentive on investments for manufacturing mobile devices.
"This is the right time to give a push to investment (for mobile handsets and tablets manufacturing) by sending the right signals through a tax holiday," says the DoT note, a copy of which is with dna.
The DoT has recommended that tax waiver should be on profits and gains from manufacturing and services to the mobile phone industry and for all fresh investments made in the telecom plant and machinery and equipment.
The department believes this will create the right investment environment for local production of mobile devices. Currently, only one-fourth of the local demand is met by domestic manufacturers. It estimates the domestic market for mobiles to hit one lakh crore in the current year. However, the Indian industry is just not geared to meet this surge in demand. DoT feels there is also a need to create capacity for export of mobile devices as, at present, indigenously produced devices are consumed only in the domestic market.
It feared that if the government did not act promptly and create a conducive and friendly investment environment, India could lose out to Vietnam, which has become a hub for telecom devices.
Citing the case of Nokia, the DoT said India was able to attract investment from the Finnish telecom major in 2006 primarily because of the tax holiday in SEZ.
Beside the tax holiday, the DoT wants the Section 35 AD of Income Tax (IT) Act for write off of new capital investment at 150% of value to be extended to cover mobiles and tablets and their parts, components and accessories.
It has asked for this Section to be added in the IT Act to shift profit-linked incentives to investment-linked incentives. The DoT also believes withdrawal of freeze on Nokia's asset would release a lot of locked up local production capacity and generate employment in the sector.
It has asked immediate removal of freeze on the telecom giant's assets at Perumbudur in Tamil Nadu.
"The closure (of the Nokia's TN facility) was not for lack of market or cost viability. The facility was closed due to ongoing tax disputes with the central and state governments, retrospective taxation issues and asset freeze," states the telecom department note.
This, it said, had "dwindled" the production and export activity in the country. Nokia met more than 50% of Indian market's demand for mobile devices in its heydays.
Other sops suggested by the telecom department include continuation of excise duty cut from 12% to 10% on machinery and durable for another seven years, exemption from countervailing duty (CVD) and special additions duty (SAD) on capital goods and durables used for equipment production, interest subsidy of 5% on fixed capital investment for domestic manufacturing to do away with their competitive disadvantage due to cheap finance cost of overseas players, rationalisation the VAT on mobile handsets at 4-5% from the current 8.8-15%.
(dna)
