Government Asks Telcos to Cut Prices to Pass GST Benefits to Customers

The Indian government has asked telecom service providers to rejig cost and lower prices to pass on the benefits of tax rate reduction under the Goods and Services Tax (GST) to customers in the country from July this year.

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“After GST regime, telecom companies would be required to re-work their costing and credits availability and re-jig their prices and ensure that the increased availability of credit is passed on to the customers by lowering their costs,” the Finance Minister said in a statement issued on Friday.

As against the above, the telecom services will attract GST of 18% in the GST regime, which is a pure Value Added Tax because full ITC of Inputs and Input Services used in the course or furtherance of business by the telecom service providers would be available.

Currently, telecom services attract a service tax of 14% along with Swachh Bharat Cess (SBC) of 0.5% and Krishi Kalyan Cess (KKC) of 0.5%.

While service tax is a pure value-added tax, Swachh Bharat Cess and Krishi Kalyan Cess are not, which is is the reason that while no ITC (Input Tax Credit) of Swachh Bharat Cess is available, the ITC of Krishi Kalyan Cess is allowed to be set-off only against Krishi Kalyan Cess. “Therefore, both the cesses are a turn-over tax,” the ministry’s statement read.

Presently Telecom Service providers are neither eligible for a credit of VAT paid on goods nor of Special Additional Duty (SAD) paid on imported goods/equipment.

However, under GST, telecom service providers would avail credit of IGST paid on domestically procured goods as also imported goods, the ministry said.

“As per some estimates, this additional Input Tax Credit would be as much as 2% of the turnover of the telecom industry. Further, ITC of Service Tax paid on the assignment of spectrum by the Government in 2016 is presently allowed to be availed of by the telecommunication companies over a period of 3 years,” the statement said.

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In the GST regime, the entire credit can be taken in the same year. Resultantly, the balance two-third credit of the previous year would be admissible in the current financial year itself. “All of these would reduce the telecom companies’ liability to pay GST through cash to about 87% of what they paid in the last fiscal,” the ministry said, adding that telecom companies will be required to re-work their costing and credits availability and re-jig their prices and ensure that the increased availability of credit is passed on to the customers by lowering their costs.

The implementation of the goods & services tax (GST) regime will pose accounting and technology related challenges for Indian telecom operators in 12 telecom circles.

Indian telecom operators will be forced to make investments worth around Rs 300 crore in modernising or overhauling their existing IT and billing systems, according to media reports. The overhaul will help these telcos to undertake “the complex task of splitting revenues stemming from roaming, interconnect and termination charges in these multi-state telecom circles to ensure GST payments compliance in each constituent state.”

Indian telecom operators recently expressed disappointment over the introducing of the GST rate of 18% on telecom services and said that this would further stress the already bleeding sector. They said that the move would slow down the planned roll-out of telecom infrastructure across the country, thereby impacting initiatives like Digital India, Cashless India.