Rajeev Chandrasekhar seeks Windfall tax levy to prevent early sale of telecom licences

New Delhi - November 18, 2009: Given the past issues and misgivings about the loss to the Exchequer due to the "first come, first served" criteria during the previous Spectrum sale, the Telecom Regulatory Authority of India (TRAI) needs to be careful this time around to prevent a repeat, cautions Rajeev Chandrasekhar, independent Member of Parliament and Member of the Standing Committee on Finance.

"Companies were previously allocated spectrum and telecom licenses by the Department of Telecommunications (DoT) at 2001 rates, but later sold these for anywhere between Rs 4,000 and Rs 9,000 crores," said Mr. Chandrasekhar. This happened despite assurances from the DoT that a lock-in period meant the promoters couldn't sell the licenses but were obliged to rollout and build their business in the next few years.

The telecom regulators must make certain there is no repeat of the colossal loss to the Exchequer. It should also be ensured that the companies being awarded spectrum are not allowed to get around the lock-in period and other restrictions under the guise of "consolidation through mergers and acquisitions". Spectrum sale must lead to affordability and further competition among telecom operators to benefit consumers. Every effort must be made to protect consumer interest as well as the Government's interest by preventing tariff cartelization.

Even if consolidations are permitted at a later date, the telecom regulators must ensure there are at least 10 operators per market. Given the size of the Indian market (800 million to 1 billion by 2015), each of the 10 operators will have significant size and scale of almost 100 million each, putting all the 10 amongst the largest in the world.

"To prevent a repeat of the previous telecom license misuse via early sale, I recommend that in the event any of the new licensees sells their stake, the profits must be taxed at a special 'windfall tax' rate, ensuring most of the profits from the premature sale benefit the Exchequer, not private companies or individuals," said Mr. Chandrasekhar.

Source : Equity Bulls

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