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States mull taxes on caller tunes & MMS
Be ready to pay more for caller tunes, ringtones, content downloads like wallpapers, screensavers and other value-added services (VAS) on your mobile handsets as some states, including Delhi and Maharashtra, are exploring the possibility of imposing entertainment tax for these features.

However, states are eagerly awaiting the Delhi High Court verdict, expected by early next month, on direct-to-home (DTH) service providers contesting the government's decision to charge Rs 20 for each DTH connection as entertainment tax and have filed writ petitions in the Delhi High Court.

"If the court's verdict goes in our favour, we will definitely look into the issue (imposing entertainment tax of mobile VAS). It is the right of the government to impose taxes on value-added related mobile features, which falls in the entertainment category," a top Delhi government official with the entertainment taxation department told MAIL TODAY.

"There is a content of entertainment for the VAS availed and so it would attract taxes. These tunes and services basically are for entertaining the caller, hence these should be taxed. Imposing of taxes on mobile VAS has become necessary because of major technological innovations taking place," he added.

Mobile VAS are premium services offered by cellular operators and service providers and include non-voice services. Currently the government charges service taxes for all voice and VAS services.

The Delhi government had amended the Delhi Entertainment and Betting Tax Act bringing DTH users in the tax net. "This will also be applicable for mobile related value-added services like ringtones, caller tunes and other content downloads," the official confirmed.

Recently, the Maharashtra government had said that an entertainment tax of 25 per cent may be levied on caller ring-back tones in the state. A proposal to this effect has been sent to the state's finance department for approval. Subsequently, it would be presented before the state cabinet for final nod.

A top official in the department of telecommunications (DoT) confirmed that some states have already approached it to know the technicality of how they could charge entertainment taxes on mobile VAS. Mobile VAS and applications, which fall under the ambit of entertainment taxes, include MMS (multimedia messages), mobile radio, USSD (interactive menu-based services), CRBT (caller ring-back tone), video streaming and mobile advertisements, besides participation in polls and contests and location based services.

Other features where taxes would be applicable include instant messaging, infotainment services (news, weather reports, songs, recipes), content downloads (wallpapers, screen savers, games, ringtones), mCommerce (financial transactions) and other downloadable mobile applications.

The telecom lobbies namely Cellular Operators Association of India (COAI) and Association of Unified Telecom Service Providers of India (Auspi) are currently preparing to contest the issue if states go ahead with charging entertainment taxes on mobile VAS. The mobile VAS industry is betting big on the launch of 3G and mobile broadband services, which are expected to be rolled out from September this year.

According to OnMobile chairman and chief executive officer (CEO), Arvind Rao, the mobile VAS industry expects a turnover of Rs 1 lakh crore by 2020, up from Rs 15,000 crore currently.

At present, about nine to 12 per cent of a telecom operator's revenues come from VAS. It is estimated that the Indian VAS market, including messaging, mobile Internet, social networking and mobile payments, stood at Rs 16,650 crore in 2009. It is expected to cross Rs 21,940 crore this year. Rao said VAS would be a larger industry than advertising or media.
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