Rural areas will need to find new ways to fund fibre broadband
The broadband tax has been scrapped in the last-minute scramble to rush key legislation through before Parliament is dissolved next week.
The tax was a key part of Labour's strategy to ensure all parts of the country get super-fast broadband.
The Conservatives have always opposed the tax, preferring to allow the market more time to roll out services before government intervention.
The levy was among three taxes in the Finance Bill to be dropped.
The 10% tax increase on cider and tax relief on holiday homes were also scrapped.
The 50p-a-month broadband tax would have been applied to all households with a landline telephone. It is estimated that it would have raised about £170m a year to help fund broadband roll-out.
It was aimed at the final third of the country where experts say it would be too expensive for commercial players such as BT and Virgin Media to roll out fibre services.
But the tax proved controversial and the Conservatives had vowed to scrap it if it had become law and they had won the election.
If funding is needed to roll broadband out to rural areas, the Conservatives plans to use some of the TV licence fee set aside for digital switch-over. That would not be available until 2012.
The cross-party Business Innovation and Skills committee of MPs had labelled the tax unfair, because most of those who would pay it would not benefit from it.
It is likely to be reinstated if Labour is re-elected in the 6 May general election.
Andrew Ferguson, editor of broadband news website Thinkbroadband, said it made the future of fast broadband uncertain.
"Dropping of the 50p per month tax will be welcomed by those that thought it was unfair, but it throws the current plan Labour plans to have next generation broadband to 90% of homes by 2017 in disarray," he said.
Malcolm Corbett, chief executive of the Independent Networks Co-operative Association (Inca), was more pragmatic.
"The government will have to raise money by other means, perhaps by getting the private sector and the communities themselves involved. With them on board, you have a fighting chance of achieving universal access," he said.