The Hindu Business Line : DoT againt sales tax on rentals — Moots legislation to bar the levy on phones

IN a move that should see a steady fall in the telephone bills of subscribers in many states across the country, the Department of Telecommunications (DoT) is pushing for a legislation to bar State Governments from levying sales tax on telephone rentals.

At present subscribers in quite a few states including Uttar Pradesh, Tamil Nadu, Punjab, Karnataka, Madhya Pradesh and Delhi are faced with the prospect of having to pay sales tax on their telephone rentals, over and above the service tax of 8 per cent that is levied. While these States have indicated that they would be imposing a sales tax of 12.5 per cent, many other states too are keen to join the bandwagon, having realised that this could make up for the revenue loss that they expect to suffer when VAT comes into force.

According to official sources, the DoT is, however, against the idea and wants to stop this trend before it catches on in the other States. Bharat Sanchar Nigam Ltd (BSNL) is also putting pressure on the Department to lobby for a legislation to end this practice and stop any more taxes that would push the telephone bill of their subscribers up. More so because with increasing competition, the large-scale surrender of landline phones has been on the increase in favour of cellular mobile connections.

It has been estimated by the company that if all the states start imposing a levy on the telephone rentals, the 40 million landline subscribers in the country will have to shell out an additional Rs 600 crore to the various State Governments. This is over and above the Rs 1,300 crore that they would be forking out as service tax.

Not only would it lead to an additional burden on the customers but would also be to the disadvantage of BSNL which is faced with a slowdown in its landline customers growth, the sources said.

They pointed out that for the moment, the DoT has set up a committee that would suggest suitable legislative actions that would be necessary to stop this trend. The recommendations are due in a couple of months' time after which further action can be expected.

They noted that the issue of sales tax on items relating to transfer of rights to use has been taken up by sales tax authorities in various states and items such as telephone rentals have been targeted starting early this year. The matter was taken to court by the DoT. While the High Court of Uttar Pradesh ruled in DoTs favour, the Supreme Court gave a judgment in February indicated that such sales tax is payable and that too with retrospective effect from 1988.

It is for this reason that legislative changes have been mooted as the only way in which the States can be made to stop imposing the tax on telephone rentals.

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