An increase of in tax rate from 15% to 18% after the introduction of the Goods and Services Tax (GST) will result in costlier telecom services, which will lead to lesser talk-time on fixed denomination packs for prepaid users which account for almost 95% of total user base in India, ICRA said on Thursday.
For telecom industry, compliance and data management requirement will increase significantly because industry’s operations are divided across 22 telecom circles where in some circles coverall several states. ICRA said that reconciliation of roaming revenues would also be a challenge.
For telecom tower industry the tax incidence will increase to 18% from 15% (service tax). However the same would be passed on to the telecom services sector, ICRA said.
ICRA said that in totality, the impact of GST on the telecom industry will be marginally negative.
The Indian government recently had 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. “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.
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.
The current duty differential between imported and domestic handsets made local manufacturing cheaper. However the levy of GST of 12% on both the categories would equate the tax structure by making locally manufactured mobile handsets costlier than before, ICRA said, adding that it may impact the various local manufacturing units which have expanded significantly in last few years.
The Ministry of Electronics and Information Technology has assured the industry of providing the duty differential in some way; however, till the time, any such benefit is announced the local manufacturing of handsets is expected to be under pressure. For imported mobile handsets, the pre-GST tax rate was 18%-27% which will now be 12%.
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