Prepaid Users Get Relief From GST; Telecom Companies To Bear the Cost: Report

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Starting July 1st, most Indian Telecom companies will be absorbing the impact of higher tax rates under the goods and services tax (GST) regime, instead of passing it on to their customers. Under GST, all Telecom companies will be charged an extra 3% for their services; however, most companies have unanimously made a decision to bear the tax hike themselves instead of charging their users, especially those on the full talk-time (FTT) and data prepaid plans. It has to be noted that the postpaid and other prepaid plans are bound to get costlier, come Saturday.

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Following Reliance Jio’s entry, there have been massive tariff wars, and in the midst of such high competition and conflict between major Telecom companies, this move will help retain the amplified problems mounting on these companies to some extent.

A top executive of a Big 3 telco, who wished to be anonymous, spoke to ET about this decision saying, "Starting July 1, we've decided to absorb the 18% GST rate on all full talk-time prepaid vouchers priced at Rs. 200 and above as the objective is to maintain price points to hold on to prepaid customers opting for these products."

According to ET, the executive said that telco decided to also bear the burden of the extra tax, on account of GST, on a selected few prepaid data sachet packs for an indefinite span, although he declined to share further details.

Most full talk-time (FTT) prepaid plans are typically priced between Rs. 100 and Rs. 1,000, with the inclusive service tax wholly absorbed by telcos, and the prepaid data plans range between Rs. 15 and Rs. 150, while offering data between 20MB to as much as 1GB based on their validity periods. With GST, all Telecom services will now bear at least 18% service tax as opposed to the previous much cheaper 15%.

“Any decision to absorb the higher GST on FTT prepaid vouchers is a clear customer retention strategy amid rising competitive intensity and pricing pressure, post-Jio’s entry,” said Mayuresh Joshi, senior vice-president at Angel Broking.

Apart from that, Sistema Shyam Teleservices, operating under the MTS brand, also confirmed that it would fully absorb the GST component for its FTT prepaid plan customers. Incidentally, other major companies like Reliance Communications, Aircel, Idea Cellular, Bharti Airtel, and Reliance Jio have not yet made a comment on this news.

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