Budget 2022: Telecom Gets a ‘top up’ for Fueling India’s Digital Ambition

For the world’s second largest telecommunications market, Budget 2022-23 has provided the perfect booster shot – one that will not just stimulate investment but also accelerate the pace of shift in focus from coverage and voice to applications that impact a billion plus Indians. The overarching intent, of course, is to push the sector from being a service provider to a world class service enabler.

The renewed commitment towards 5 per cent allocation of Universal Service Obligation Fund (‘USOF’) and the BharatNet project will go a long way in bridging the digital divide. These initiatives will attempt to bring the telecom revolution at the doorstep of the lowest common denominator. The focus on accessible online education through augmentation of digital technologies and proposed launch of a digital ecosystem for Skilling and Livelihood (DESH-Stack e-portal) is expected to be steered by this sector.

For the population seeking high-end smartphones, laptops, and high-speed internet, the 5G spectrum auction will go ahead as planned, followed by the launch of the 5G services in FY’ 22-23. The Government also announced that measures will be taken to bolster PLI Scheme for 5G network equipment manufacture. These measures will strengthen the ‘Make in India’ and ‘AatmaNirbhar Bharat’ initiatives and make the sector globally competitive.

From a tax perspective, the government continues on its path of stability, certainty, transparency and building trust as outlined in the FM’s speech.

On Direct tax, the Government’s resistance to play with the personal and corporate tax rates is a sign of certainty and stability. The decision to extend the cut-off date for newly set up manufacturing by a year will help India remain top of mind for global telecom operators who continue to look at supply chain diversification across regions. This coupled with the reduced headline rate of 15% can act as a major incentive for the PLI scheme for the design led manufacturing. In addition, the one-year extension of tax holiday to start ups will likely see the emergence of new players, considering the wide proliferation of start-ups in the 5G space.

On Indirect Tax front, the reduction in the Basic Customs Duty (‘BCD’) on a range of products such as camera lenses, transformers for use in chargers/ adapters, specified goods used for paging services, parts used in the manufacture of populated printed circuit boards of specified goods etc. and telephone handsets, will reinforce the Government’s commitment to make telecom accessible to the bottom of the pyramid

The increase in timeline for claiming input tax credit under Goods & Services Tax (GST) from September to 30 November of the subsequent FY is seen as a welcome move. Budget also proposes to restrict the validity of the Advance Ruling under Customs Act to three years when there has been no change in facts or law. The purpose of this move remains unclear as this will require taxpayers to obtain a fresh ruling where the original one has no reason to be invalidated.

Amongst the emerging areas, the inclusion of Data Centers in the harmonized list of infrastructures is a welcome move, one that will help the segment become one of the frontrunners in India’s economic growth story. This will likely attract global Data Center operators, managed services providers, telecom operators and strategic investors keen on playing a role in building India’s digital infrastructure. The roll out of 5G services is expected to further boost the demand for data center services, thereby creating a win-win scenario for all stakeholders.

While there are several positives, some of the unaddressed issues include applicability of Equalization Levy to cross-border telecom services, treatment of expenditure incurred prior to the spectrum being put to use in a deferred payment scenario, resolution on the long-standing litigation issue around the applicability of 5% TDS on Recharge Vouchers, amongst others.

In summary, Budget 2022 has laid out a vision for India @100, reflective of our resilient economy depicted by quick rebound and high projected growth rate. It recognizes the importance of the telecom sector and banks on it to uphold the surge in rising above the pandemic. It aims at bridging the digital divide and promoting digital economy led by technology enabled development thereby providing the sector with immense opportunities to grow.

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