GST India: Impact on Telecom Sector:

Tax Rate:

Telecom services are taxed at 14.5% currently which under GST regime are likely to become costlier at standard rate of 17-18% thus burdening end user. Elimination of exemptions granted to telecom service distributors under GST regime would also add to cost of services, driving the prices.

Mobile handsets attract lower rate of Excise (12.5%) and VAT (5 to 10%) as centre and states promote their adoption. Under GST they are likely to be charged at standard rate of 17 to 18%, however due to elimination of double taxation the net impact on prices is likely to be negligible.

Elimination of cascading effect:

The input credit on purchase of telecom infrastructure (tower, equipment etc.) will be available for set-off against output liability thus reducing the incidence of costs for end-user. Certain sale of products (Ex: SIM card, Currency vouchers) are suffering from both VAT and ST currently leading to dual taxation. Under GST a single tax would be applicable. At a later date when GST is extended to petroleum products and electricity, the input on diesel and electricity purchased for the generator sets used in running of cell towers will also be available for set-off.

Business Process Change:

Telecom operations and accounting are carried out at circle level as determined by TRAI and services are provided at pan-India basis with single registration. Many such circles are across multiple states (Ex: WB circle excludes Kolkata but includes Andaman-Nicobar and Sikkim). In case of customers using roaming services, determining point of supply and apportioning it state wise will be hugely difficult. Under GST, state wise registration is required which is different from circle thus adding to significant changes to IT systems for accounting, determining point of supply etc. ISD registration may also be required state wise unless clarity is provided that single ISD registration across nation is sufficient.

Registration requirements for additional place of business would be arduous as all towers / cell sites (lakhs of them across geographies) and all distributor/retailer locations (few thousands who sell SIM cards and currency recharge vouchers) will have to be registered. Clarity is also needed on the treatment of Value Added Services (VAS) such as Data, Wallet, and Advertisements etc. under GST. In case the services of a telecom operator are not available in a particular location they use the inter linking services of NLD (National Long Distance) or network of other telecom operators, leading to tax incidence under GST. Also, NLD will have the additional burden of defining the point of supply for the service. Inter linking services availed by one branch from another of the same company may also attract tax liability under GST. All these would add to costs and have price impact.

Telecom companies sell recharge vouchers at a discounted price to distributors and pay Service Tax on full amount. However tax authorities want them to also withhold tax on the discount part (or income margin of the distributor) and discharge the liability. Under GST, clarity needs to emerge. 

(The opinion expressed in this blog are of the author and do not represent any organization)