Recommendations for the Union Finance Budget 2009-10

ISPAI Press Release on June 19, 2009

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Recommendations for the Union Finance Budget 2009-10

World has recognized the potential of ubiquitous Broadband Services in the growth of GDP and enhancement in quality of life through social applications including tele-education, tele-medicine, e- governance, entertainment as well as employment generation by way of high speed access to information and web based communications.

This is especially true in the case of Internet where the government is exploring all possibilities to introduce citizen-interface through scalable and standardized e-government applications at all levels – central, state and local. The potential for Internet usage is immense with the ongoing developmental initiatives like Indian language application and translation application and focus on content development that is local in context and is hosted within the country.

ISPAI is pleased to forward its recommendations for the Union Budget 2009- 10

Proposal for Tax Benefits

1. 100% depreciation for computers within the first year.

1. 100% depreciation on Broadband Customer Premise Equipment (CPE) including set top boxes, modems, wireless Radios and routers within the first year.

1. 100% depreciation should also be provided on any hardware/system which is beeninstalled for Monitoring / Security purposes.

1. 100% exemption from Custom Duty on Goods imported by Internet Service Providers for the purpose of providing Internet/Broadband Access.

1. Government is well aware that Wireless Technologies are the key to increase physical connectivity across the country for higher Internet growth. Technologies like Wimax, etc are being considered actively and investments being planned and done by various ISPs. We, therefore, urge the government to consider re-introducing the section 10(23)(g) of the Income Tax act, so as to provide tax benefits to ISPs investing in Wireless Infrastructure, such as WIMAX, etc. whereby income/dividends from such Wireless Infrastructure being invested in become exempt from Income Tax for a period of 5 years, to begin with. This will help boost investments in the modern infrastructure that is essential to connect the population of the country, for bigger economic and social gains.

1. Set off to ISPs on AGR – ISPs gets resources such as Leased Lines, Bandwidth, PRI etc from Access Service Providers which pays AGR to Govt. Similar payments (i.e. AGR) by ISPs is tantamount to double taxation. Accordingly set off should be available to ISPs as itis applicable in case of Service Tax.

1. Income Tax Exemption u/s 80IA was provided to Internet/broadband services by the Govt of India, considering that Internet Broadband was expected to fuel economic growth. While some level of internet penetration has been achieved, the industry has yet to realize it's full potential, through wide penetration among the masses.Government of India evidently supports the contention by the fact that Broadband Policy was announced in 2004 and the milestones mentioned therein are still to be secured. The industry wants to support the government's cause to increase Broadband Internet penetration and usage amongst maximum possible population. TRAI has also clearly enumerated the need to support Internet Broadband and has suggested measures to do the same by various means, including fiscal incentives by way of tax exemptions.

ISPAI therefore urges that –

A) Benefit under section 80IA of the Income Tax exemption may be suitably extended so that all registered and Licensed ISPs can avail of the 100% income tax exemption for another 5 years and 30% deduction becomes available for another 5 years thereafter. It may be noted that almost no ISP has yet been able to avail the exemption, provided earlier, since most of them have been recording losses, while investing in the Internet business. While Internet usage is now beginning to get some boost, the Government may consider it worthwhile to encourage the ISP industry to better achieve the desired results.

B) A huge barrier to achieving the desired penetration of Internet in India is the cost of ownership of Personal Computers. While, the Govt has rightly encouraged the lowering of prices of PC's by extending tax benefits to the IT Hardware industry, still most people find it expensive to invest in their own Computers, that is essential to use Internet. We, therefore, urge the Government of India to please consider extending support to individuals, by way of allowing deduction from personal income tax, to individual IT assesses, the cost of one PC, whether Desktop or Laptop, on production of receipt of purchase from authorized vendors/sources. This facility could be given for one computer per household, or a period of 5 years. This will dramatically increase the purchase and investments by households in purchase of Computers and thereby connect to the Internet/Broadband, increasing both penetration and usage.

1. All corporations, whether public or private, should be allowed to give Rs. 9600 per annum allowance to employees for broadband services access at home. This allowance should be removed from taxable income for the corporation. The same facility should be extended to self-employed professionals / individuals. Allowance given to employee for use of Broadband connection should not be included for the purpose of calculating FBT.

1. Waiver by way of a legislation of ROW charges for the next “5” years so as to truly make India a broadband super-highway.Operators can then invest in fiber/copper for delivering Broadband

Recommendations for Service Tax

1. Five year holiday from Service tax on Internet/ Broadband.Indiawith poor penetrationof Broadband should not Levy Service Tax. Government should exempt levy of Service Tax on Internet/Broadband Services for next 5 years.

PCOs had done excellent job in spreading the reach of Telephone to the masses in early 90s. Cyber café can replicate the same for Internet/Broadband. Cyber Café can play crucial role in spreading the Internet to the masses in the small cities/ towns and semi-rural/ rural areas since there is low penetration of pc, internet and telephone in these areas. To make this happen Govt should not levy Service Tax on it rather encourage ISPs / Service Providers to establish more cyber café in the country. It is good employment opportunities for the un-employed youth in small towns/cities, rural / semi-rural areas. Government should provide easy loan facilities to the youth to start cyber café in their area and also consider including this as part of Central / stating Rojgar Yojna.

1. DoT / Government of India should also recommend to all State Governments to waive VAT/ Sales Tax on Internet/Broadband Services and classify it as ‘Service’ not ‘Goods’. It is an essential service and should not be tax lavishly.

1. Similar recommendations or legislation should also go from the Government of India to the State Governments to waive Entertainment Tax, levied on Broadband subscriptions and entertainment services, if they are provided through a broadband or internet platform. The State Government should then follow these recommendations with legislation to ensure execution.

We hope the above recommendations will be considered positively and ISPAI will be happy to discuss these issues with the authorities as and when required.

Rajesh Chharia

President

Internet Service Provider Association of India, New Delhi

+9198110 38188

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