Telcos Say 18 Percent GST Rate on Telecom Services to Stress Industry, May Slowdown Network Roll Out

Indian telecom operators on Friday expressed disappointment over the introduction of the Goods and Service Tax rate of 18 percent on telecom services and said that this would further stress the already bleeding sector. Currently, 15 percent service tax applies to telecom services.

These telcos through their body: Cellular Operators Association of India (COAI), 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 introduction of the new 18 percent GST rate will increase customers’ mobile phone bills by three percentage point rise.

“Telecom industry hails GST as an iconic reform, but we are disappointed with announced rate of 18 percent. We had submitted to the govt that consideration must be given to the present financial condition of the sector and any rate beyond the existing rate of 15% makes the telecom services more expensive for the consumer. It will augment the existing burden of the industry further,” Rajan S Mathews, Director General, COAI said in a statement.

The lobbying body, which represents Bharti Airtel, Vodafone India, Idea Cellular, Aircel, Telenor, and Reliance Jio, stated that industry has always hailed GST as an iconic reform, as it will bring in a new era of ‘one nation one tax’ for the country.India-GST

“We still believe that it will enhance ease of doing business and streamline tax collection and compliance for the industry. However, we believe that the rate announced at 18% will further stress the already bleeding sector,” it said.

COAI said that during several rounds of meetings with the GST Council, the representatives of the industry have brought forward issues, related to smooth operations and expansion of the telecom services such as place of business, centralised settlements, and multiple jurisdictions in one LSA, Place of Supply (PoS), MRP-based valuation and clarity was sought.

The body said that “dichotomy between the area covered by telecom circles and state boundaries would create significant IT and accounting challenges for operators.”

For the purpose of licencing, the country is divided into 22 telecom service areas or circles, for which the players are given an operating licence for each circle, whereas GST sees only 29 states and seven union territory divisions.

Around 12 circles have multiple states as part of their territory while five states have multiple circles in their territory.

COAI said that the telecom sector pays around 30 percent of its earnings in taxes and levies, including spectrum usage charge and licence fees. It added that due to some reasons, including hyper-competitiveness, the sector has come to the point that can be seen as just short of needing a bail-out. Total debt for the industry is at around Rs 4.5 lakh crore, while revenues are around than half this. Despite this, tariffs have been going in the opposite direction of inflation.

“As an essential service, the telecom industry needs some benefits and tax relaxation in order to provide a seamless and hassle-free service. The industry has worked tirelessly and has fulfilled its motto of connecting everyone till the last mile connectivity,” added Mathews.

Considering the massive impact of GST, the operators have already initiated the registration process involving migration to the GST regime. However, clarity is still awaited on certain aspects of the published rules, and the implementation depends heavily on IT compatibility which requires sufficient time, COAI said.

“GST remains iconic in many ways, besides providing the right method for calculation of tax and paving the way for better business. COAI is hopeful that GST will ensure a mechanism to bring down ancillary and peripheral costs of streamlining other services and the industry remains committed for a fully empowered and connected India,” the body said.

Uday Pimprikar, Tax Partner, EY India said, “Imposing 18% tax on telecom is likely to increase the overall tax burden and therefore may have a negative impact on the consumers’ expenses. It needs to be appreciated that telecom is a necessity and an extremely important infrastructure service & resource and thus deserves more sensitive treatment.”

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