The first issue would arise when the shares are sold: will it attract capital gains tax, or will it be taxed under income from other sources? If it is capital gains, will it be short term or long term, because, the shares are sold immediately. Again, what will be the period for classifying capital gains into short term or long term? Shares held for a period exceeding one year qualify for long-term capital gains, while for other assets, the period is three years. In this case, since shares will be sold immediately on conversion, what will be the period of holding? Is it a share, or is it an "other asset"?

It is recommended that Indian employees should be allowed to swap shares of domestic companies with the shares of the foreign firm automatically, and such transactions should be exempt from tax. Share swap (or exchange of asset for asset) is a transfer, and attracts capital gains tax. Should only the swap of shares allotted under Esop be exempt from tax? According to chartered accountant Umesh Gala, "It is unlikely that the exemption will be granted only to such specific transactions."

The other suggestion is that the employee exercising shares under Esop should be taxed only at the time of sale of shares. This suggestion, if implemented, will be a major relief, as at present, on exercise of the option, an employer is required to deduct TDS (as exercise of option is a perquisite). It results in a situation that an employee's salary for a year may get deducted as salary, as the difference between the market price on the date of exercise of option and the price at which the option is granted is treated as a perquisite.

Furthermore, the issue of how to deduct TDS for the option granted to the employee of the parent/subsidiary also remains largely unanswered.

DoT
The transformation of telecommunications networks, brought about mainly by a marriage with computers, has driven down communication costs and led to an era of technological convergence. A fact not lost on Union minister of state for communications Tapan Sikdar, who has stated that due to technological convergence most offices will be wireless setups by 2003. Reiterating this line of thinking is the recent tieup between Subhash Chandra's Zee, Craig MaCaw, and ICO Global.

Given this scenario, one has no option but to question a recent decision by the Department of Telecommunications (DoT), which seems to think otherwise. DoT appears to be of the thinking that cable telephony and not wireless/cellular or satellite telephony is the wave of the future. That is, perhaps, the only logical conclusion one can draw from DoT's recent orders for jelly filled telephone and fibre optic cables. These orders incidentally are worth Rs 4,500-5,000 crore for the current fiscal.

Additionally, according to experts, DoT is likely to spend another Rs 15,000 crore for laying of underground cables, and another Rs 20,000 crore for creating and updating the basic infrastructure of the archaic telephone exchanges. Thus, in the next three years, DoT's expenditure on fixed telephony will go up to a staggering Rs 100,000 crore.

Now, would not such a huge amount been more wisely spent in an investment in future technologies? Take for the instance the case of broad band satellite telephony, which is set to transform not just the telecommunications industry, but the way the world works. However, the use of global mobile personal communications by satellite (GMPCs) within India could well have a direct bearing on the fortunes of VSNL, which at present enjoys a monopoly in international long distance telephony till 2004. But realising the potential, even VSNL has opted for safer ground, which it has managed by investing around $150 million in ICO Global, one of the GMPCs service providers. This investment encompasses an agreement to set up, operate, and maintain its international gateway in India, by setting up 12 satellite access nodes in the country.

Thus, could not DoT have spent its money more wisely in the same manner? ICO Global has 66 satellites and could provide ready access to the remotest of places and villages in India and the world.

But while all this talk about satellite telephony is fine, the bottomline is providing basic services to the rural populace at low costs. This, unfortunately, will only come in due course of time with competition, which is shaping up now. The US-based satellite giant Lockheed Martin has promoted ACeS International for satellite telephony projects at a cost of $700 million (Rs 3,000 crore), and plans to offer mobile satellite phone services in Asia by mid 2000.

The company has planned to offer telephone tariff at a much cheaper rate than Iridium. Thus, with the advent of many new entrants, eventually, the rate of mobile telephony will be cheaper than that of fixed telephony. But until then, it would suffice to have one satellite phone per village to begin with for providing remote area connectivity.