Budget 2024: Private space cos seek reasonable spectrum usage charge, PLI for components and tax holidays

Satcom

Private space companies have urged the Union government to levy reasonable Spectrum Usage Charges (SUC) as a percentage of Adjusted Gross Revenue (AGR) for satellite services allocated non-auctioned spectrum under the new Telecommunications Act, 2023 to ensure that satellite operators are not overburdened with excessive fees.

The Indian Space Association (ISpA) also suggested allowing a 25 percent depreciation on the one-time licence fee for satellite operators and treating the annual licence fee as revenue expenditure. This approach would reduce taxable profits and optimize the tax impact, thereby supporting business operations in the satellite sector.

The space companies, through their industry association, the Indian Space Association (ISpA), have also sought a tax holiday and GST exemption to boost the industry's financial and overall health ahead of the Union Budget 2024.

The recommendations came quickly after the Communications Minister Jyotiraditya Scindia chaired the inaugural advisory meeting with key stakeholders from the Satellite Communication Ecosystem. Scindia, in a post on X [formerly Twitter], said that he discussed areas of interventions to ensure higher penetration of reliable telecom services throughout the country to provide high-quality telecommunication services and discussed areas of interventions to ensure higher penetration of reliable telecom services throughout the country.

Drawing inspiration from the PLI scheme for drones, ISpA suggested introducing a similar scheme for space-grade components. A PLI scheme, it said, would incentivize domestic manufacturing, bolster the supply chain for space-related technologies, and attract investment by providing financial incentives to manufacturers based on their output.

ISpA, in its recommendations, urged the government to extend the GST exemption beyond satellite launch services to other critical components of satellites, ground systems, and launch vehicles. They argue that this extension would reduce GST input tax credit costs across the supply chain, benefiting the entire sector.

As space industrial parks are planned to be developed in various states, several non-government entities, including start-ups, plan to make large greenfield investments.

The body urged the government to introduce tax holidays and exemptions for space sector firms to stimulate growth within the space sector. “Furthermore, we suggest concessions on customs duties for notified imports, which would ease the financial burden on these companies,” it said.

ISpA also recommended lowering the tax rate on interest on foreign borrowings to five percent to facilitate more accessible access to necessary foreign funding at cost-effective interest rates for project financing. It said activities such as research and development, satellite manufacturing, and constructing satellite launches and earth stations are capital-intensive, so a reduction in the tax rate on interest on foreign borrowings is required.

Furthermore, it sought a reduction in the withholding tax from 10 percent to 2 percent on payments made to Indian companies under section 194J of the Income-tax Act, 1961. ISpA said this measure will help enhance satellite operators' profitability and sustainability.

The body also called for a commitment from the government to procure and adopt space technology solutions across various governance areas such as agriculture, disaster management, infrastructure planning and development monitoring, urban development, and remote area connectivity. This would not only provide a stable market for space tech firms but also enhance the efficiency of public services.

In line with the above, ISpA said a Digital Public Infrastructure (DPI) and Digital Public Goods (DPG) approach for Earth observation-based geospatial analytics and insights could unlock value and innovation for several stakeholders beyond the space sector.

“With the implementation of these reforms, ISpA expects that enhanced investment and technological advancements will drive innovation, fostering a robust ecosystem for startups and established companies of the space industry,” Lt. Gen. A.K. Bhatt (Retd.), Director General of the Indian Space Association said in a statement.

He said the prompt implementation of the Space Activities Act is crucial for addressing legal and standards-related issues and providing a clear regulatory framework for the industry.

“With the recent reforms and initiatives by the government and the guidelines for implementation of Indian Space Policy 2023 from IN-SPACe, the space sector is at a critical juncture towards the journey to becoming a global space power in the coming years,” Bhatt added.