The telecom sector, which has been put under the 18 per cent rate slab for the Goods and Services Tax (GST), has been asked by the finance ministry to “re-jig their prices” considering that the effective incidence of the levy will come down despite being in the said slab, considering that service providers will be able to claim input tax credit. However, the industry has questioned the government’s calculations, and said that its estimates do not concur with the Centre’s.
Currently, telecom services attract a service tax of 14 per cent along with Swachh Bharat Cess and Krishi Kalyan Cess of 0.5 per cent, each. “As against the above, the telecommunication services will attract GST of 18 per cent in the GST regime, which is a pure value added tax (VAT) because full ITC on inputs used in the course or furtherance of business by the telecommunication service providers would be available,” a finance ministry statement said. It added that on account of the additional benefits through credits, the telecom companies’ liability to pay GST through cash to about 87 per cent of what they paid in the last fiscal.
The Cellular Operators Association of India (COAI) said “Based on our understanding, we don’t agree with the calculation. Our numbers indicate that we’ll have less than 1 per cent that’ll be offset. The offset will only bring it to 17 per cent, which would be still be higher than the current 15 per cent rate. So we don’t see how it’ll be adjusted any more than that. Our calculations don’t concur with those (the finance ministry’s),” said COAI’s director general, Rajan S Mathews.
The government’s statement said that under GST, operators would avail credit of IGST paid on domestically procured goods as also imported goods. “As per some estimates, this additional Input Tax Credit would be as much as 2 per cent of the turnover of the telecom industry,” it said.
Additionally, ITC of service tax paid on assignment of spectrum by the government in 2016 can be availed by the telcos over a period of three years. Under the GST regime, which is likely to kick in from July 1, the entire credit can be taken in the same year. As a result of this, the balance two-third credit of the previous year would also be admissible in the current financial year itself.
Experts, on the other hand, believe that while there would be additional benefits accrued by the telecom companies, a detailed calculation by the industry would have to be done to come at a number of what part of the benefit can be passed on to the consumer.
“The CVD portion or the excise portion was already creditable. The only portion that was not creditable earlier was the VAT or the SAD portion, and how big is that is something that is required to be seen. This is only on the capital side, not on the operational side. There would be operational benefits also, but the industry would need to make that calculation. From an indirect tax perspective, there would be benefits, which need to be passed across the entire supply chain. Credits would be available, but the exact numbers need to be verified,” said Bipin Sapra, partner-indirect tax, EY.
COAI, which had earlier disagreed with the government deciding on putting the telecom sector under the 18 per cent slab, reiterated that mobile companies were already under pressure of reduced tariffs due to cut-throat competition in the sector.
“All of the companies are bleeding. I don’t think there’s any room for adjustment of tariffs anymore. I don’t think it makes any sense to say that we have to adjust our tariffs because they’re already at rock bottom. Ultimately, no matter what you do, 18 per cent will always be applied on the tariff, the customer will have to pay at that rate no matter what,” Mathews said.