The service tax collection from the telecommunication sector is likely to jump by 160% towards the end of 2007-08 even as its contribution will go up to Rs.130 billion from the current level of about Rs.50 billion, according to an analysis carried out by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

A massive hike in the number of telephone users, particularly in the wireless segment, would hit about 280 million by 2007-08, shows the ASSOCHAM research. As the telecom sector currently remains the largest source for the service tax, the industry chamber has therefore projected over two and half fold increase in this sector's contribution to the Government kitty.

"While the number of telephone subscribers being added per month is three million, the figure would go up to five million with the total subscriber base growing by three times in the next three years", says Anil K. Aggarwal, the ASSOCHAM President. "The telecom revolution, particularly in the mobile segment, has helped the Government revenue. What should be heartening is that the trend is going to continue", he added.

The telecom sector has remained a pre-dominant contributor to the service tax kitty ever since the new tax was introduced in 1994. In 1998-99, it contributed as much as 54% to the total service tax revenue. Thanks to a large number of additional items coming under the service tax net, in the subsequent years the percentage contribution from the telecom sector declined from 2003-04 onwards.

While the growing number of services under the tax net has resulted in a decline in the percentage share of the telecom sector, it would still remain a major contributor to the exchequer, feels ASSOCHAM.

The importance of the telecom sector from the service tax point of view can be gauged from the fact that while over 70 services grossed Rs.141.34 billion in 2004-05, the tax on telephone itself was over Rs.50 billion. The budget estimates for the current fiscal year put this figure at Rs.51.86 billion on a total estimated service tax of Rs.175 billion.

In what could be termed as a "mobile revolution", the total mobile subscriber base touched 52.22 million in fiscal 2004-05 registering an impressive growth of 55% over last year. This subscriber base has reached a level of 59.83 million during July 2005, adding 2.5 million customers per month. With the current pace of growth in the telecom industry, it is likely that the revenue target set by the Government touches Rs.71.95 billion at the end of the current fiscal.

There are still 800 million people who are outside the network of cellular phones in the country and it is expected that the growth in the telephone subscribers would be more pronounced in the mobile segment. It is expected the total subscriber base would reach 250 million by the end of December 2007. To reach this target India needs to add on an average 5 million subscribers per month. If such growth takes place, AEP projects that the telephone industry would contribute substantially to the service tax revenue of the exchequer.

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