Scrap the bad cesses PDF Print E-mail
Monday, 16 June 2014 00:00
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Why have an oil or a telecom one if it is not used?

Based on its annual revenues of around R1.50 lakh crore, the telecom industry contributes around R8,000 crore each year to the Universal Services Obligation Fund, a fund set up to subsidise rural telephony. Given how rural telephony has grown in the country—rural subscribers are now around 40% of the country’s total—and how private firms outnumber BSNL 9:1 when it comes to rural subscribers, there is really little case for carrying on with the USOF. Bharti Airtel, which hardly uses USO funds has over 90 million rural subscribers as compared to BSNL’s 39 million, for instance. Indeed, given how badly the fund is run, while it has accumulated R58,600 crore since FY03, just R17,900 crore has been disbursed so far and, of this, R6,900 crore was given to BSNL by way of reimbursement of its spectrum charges and licence fees between FY03 and FY06—it is this unutilised fund, for instance, that had the UPA, for instance, thinking of using these funds to distribute free mobile phones in rural areas.

While in FY13, the amounts collected were 10.8 times the amounts disbursed, the figure was still a whopping 3.6 times in FY14. Indeed, for the sector as a whole, the total licence fees/spectrum charges—including the USOF’s 5% levy—add up to an unconscionable 12-15% of revenues; apart from this, as in the case of other sectors, there is the service tax that is levied. At a time when the sector was getting valuable spectrum for free, this probably made sense. But when, over the years, the sector is paying hefty market prices for the spectrum it is buying, there is no case at all for charging these levies.

Equally bad is the Oil Industry Development Board (OIDB) cess, in place since 1975, ostensibly to develop the industry. With the cess, mostly paid by ONGC, adding up to over R8,000 crore a year, the government has collected R1.04 lakh crore so far, but used just R902 crore—in the pre-1991 period—for the development of the industry. Theoretically, the cess could be, and should be, used to commission more 3D seismic surveys which would help companies decide where to drill for oil/gas. But given such surveys cost $1,000 per square km, each year’s contribution is enough to fund over 1 million sq km of data—India’s total area is 3.3 million sq km. As in the case of the telecom levies, there is a case for scrapping the OIBD cess in the budget.


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