GST impact: Govt expects lower phone bills, telcos differ

Under GST, telcos have to pay an 18% levy but can claim input tax credit

Telecom companies have warned of a 2-3 per cent increase in phone bills in the goods and services tax (GST) regime even as the finance ministry has asked them to “re-jig prices and re-work costs” to pass on benefits to the consumers.

The Cellular Operators Association of India (COAI), the industry body, has said that the notion that the increase in the GST rate will be cancelled out by a reduction of cascading tax costs (on account of the fact that the state value-added tax, entry taxes, and special additional duty on procurement have been subsumed) is misconceived.

“The GST rate of 18 per cent proposed for telecommunication services will increase the cost of telecom services for consumers, considering that telecommunication services at present are subjected to service tax of 15 per cent (including cess),” said Rajan S Mathews, director-general, COAI.

Under the GST regime, which will come into effect from July 1, telcos have to pay an 18 per cent levy but can claim input tax credit (ITC), which could bring down the incidence of the levy.

According to government “estimates”, the telecom industry will benefit from the additional 2 per cent input tax credit, which could be as much as 2 per cent of the turnover of the industry. Also, the input tax credit on account of the service tax paid on spectrum charges (in 2016) can now be availed of in a year, i.e. 2017-18 rather than over three years in the current indirect tax regime. However, the COAI has said it would not be correct to state that this has reduced the cost for telecom companies, given the small amount of interest benefit that will accrue to telecom firms.

“The telecom companies paid tax only on the instalment amount for spectrum auctioned and allotted after April 1, 2016, and not on the entire spectrum amount,” Mathews said, adding, “as it is, for the remaining one-third instalment, which can be taken in 2018-19, there is no clarity regarding the mechanism of transiting to the said credit”.

The COAI said the industry, therefore, was of the view that there was no perceived benefit due to increased input tax credit vis-à-vis the 18 per cent GST rate. This rate increase is not beneficial to the end consumer either.

Commenting on the finance ministry’s statement, Rakesh Nangia, Managing Partner, Nangia & Co LLP, said: “Gone are days when price determination went un-monitored, now the government is making sure that any increase in the price of telecom services is well reasoned and is determined after taking into account the increased tax rate as well as the increased benefit of tax credit. The government is determined to make sure that the GST does not lead to inflation even in the short run.”

“The government is working on sectoral impacts, which would help in ensuring that inflation remains under control. I believe the industry should accept the modalities of this new legislation and pass on the benefits of reduced tax costs to the consumer,” Nangia added.