ISpA Presents Key Recommendations for Union Budget 2024-25 to Boost Indian Space Industry

The Indian Space Association, representing private space companies, has proposed recommendations for the Union Budget 2024-25. These suggestions emphasize the need for financial incentives and strategic government support to enhance the industry's growth and stability.

Key Recommendations:

Expansion of GST to Launch Vehicles, Ground Systems & Critical Satellite Components8

While the GST exemption on satellite launch services is widely appreciated, ISpA recommends extending this exemption to include critical satellite components, ground systems, and launch vehicles. Additionally, the impact of input tax credit for procuring goods and services should be analyzed to ensure that the benefit extends across the supply chain. Providing similar exemptions for key goods and services, including capital goods used in satellite launch services, will help reduce GST input tax credit costs and benefit the entire value chain.

Tax Exemptions/Tax Holidays and Customs-Duty Exemptions:

With the development of space industrial parks in various states, numerous private entities, including legacy firms and startups, are planning significant greenfield investments. ISpA urges the government to introduce tax holidays and exemptions for space sector firms to foster growth. Additionally, ISpA recommends concessions on customs duties for specified imports to alleviate the financial burden on these companies.

Reduction of Tax Rate on Interest for Foreign Borrowings:

Given the capital-intensive nature of the space industry, which includes research and development, satellite manufacturing, and the construction of satellite launches and earth stations, ISpA recommends lowering the tax rate on interest for foreign borrowings to 5%. This would facilitate easier access to essential foreign funding at more cost-effective interest rates for project financing.

Reduced Withholding Tax for the Satellite Sector:

Currently, the withholding tax rate on payments made to Indian companies providing satellite services is set at 10% under section 194J of the Income-tax Act, 1961. Considering the low profit margins in the satellite sector, ISpA recommends reducing this rate from 10% to 2% on payments made to Indian companies. This measure would enhance the profitability and sustainability of satellite operators.

Extension of PLI to Space-Grade Components:

   To promote self-reliance in the space sector, ISpA suggests introducing a Production-Linked Incentive (PLI) scheme for space-grade components, inspired by the PLI scheme for drones. This initiative would encourage domestic manufacturing under the 'Make in India' vision, strengthen the supply chain for space-related technologies, and attract investment by providing financial incentives to manufacturers based on their output.

Government Commitment to Adopt NewSpace Technologies

ISpA urges the government to commit to procuring and implementing space technology solutions across various sectors, including agriculture, disaster management, infrastructure planning, urban development, and remote area connectivity. This commitment would create a stable market for space tech firms and improve public service efficiency.

   Additionally, adopting a Digital Public Infrastructure (DPI) and Digital Public Goods (DPG) approach for Earth observation-based geospatial analytics can unlock value and innovation for a wide range of stakeholders beyond the space sector. Following previous budget announcements to create DPI in sectors like agriculture, a similar initiative for Earth observation will facilitate greater access to space technology.

Reasonable Spectrum Usage Charges:

   The New Telecommunications Act 2023 allows for spectrum allocation for satellite applications through an administrative method. ISpA recommends implementing reasonable Spectrum Usage Charges (SUC) as a percentage of Adjusted Gross Revenue (AGR) for satellite services utilizing non-auctioned spectrum. This approach will help prevent excessive fees from burdening satellite operators.

Depreciation on One-Time Fees and License Charges for Satellite Operators:

Satellite service providers in India are required to pay a one-time license or spectrum fee to the government to secure the right to operate satellite services, as well as an annual fee based on revenue. ISpA advocates for a more equitable treatment of these fees, proposing that 25% of the one-time fee be allowed as depreciation and that the annual fee be classified as revenue expenditure. This would lower taxable profits and optimize the tax impact, ultimately supporting business operations in the satellite sector.

Perspective of Lt. Gen. A.K. Bhatt (Retd.), Director General, Indian Space Association 

"We believe that India's focus on innovation and favourable regulatory environment will draw significant foreign direct investment, boosting economic growth and unlock the $44 billion opportunity, driving unprecedented economic progress and prosperity. With the implementation of the above reforms and initiatives, ISpA expects that enhanced investment and technological advancements will drive innovation, fostering a robust ecosystem for startups and established companies of the space industry. The prompt implementation of the Space Activities Act is crucial for addressing legal and standards related issues, 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 become a global space power in the coming years”, said  Lt. Gen. A.K. Bhatt (Retd.), Director General, Indian Space Association.