KOLKATA: The government on Friday asked phone companies to cut prices of telecom services by rejigging costs to factor in the benefits of increased tax credits under GST.
“Telecom companies are required to re-work their costing and credits availability, and rejig their prices and ensure the increased availability of credit is passed on to customers,” the finance ministry said in an official statement.
According to the ministry, the additional input tax credits (ITCs) that the telcos would enjoy under the goods and services tax regime would be “as much as 2% of the turnover of the telecoms industry”.
Telcos, it said, would clearly benefit under GST. “At present, they are neither eligible for credit of VAT paid on goods nor of special additional duty (SAD) paid on imported goods equipment, but under GST, they would avail of integrated GST (IGST) paid on domestically procured goods as also imported goods,” the finance ministry said.
Mobile carriers, however, disputed the government’s observations, asserting that the increase in GST rate for telecom services to 18% from 15%, is far more than the effective rise in tax credits. Such a scenario, they said, would see postpaid users shelling out 2-3% more on their monthly phone bills, while prepaid users would see a reduction in their talk-times once GST kicks in.
“The notion that the increase in the (GST) rate of 3% is by and large getting compensated by a reduction of cascading tax costs (on account of the fact that state VAT, entry taxes and SAD on procurements have been subsumed) is misconceived. The total quantum of benefit accruing to telecom companies on account of reduction in cascading taxes is on an average merely around 0.7-1% of revenues,” said Rajan Mathews, director general of Cellular Operators Association of India (COAI), which represents Bharti Airtel, Vodafone India, Idea Cellular and new entrant, Reliance Jio Infocomm.
This, he said, is since “bulk of the tax costs incurred by telcos for procurement of goods is central sales tax (CST) which is at the rate of 2% against C forms and entry tax is applicable only in selective states”.
According to Mathews, the value of such procurements is in single digits as compared to revenues. Furthermore, a number of key inputs such as diesel, electricity duty etc.that are consumed by telecom companies continue to be outside the GST regime, which is why, the tele com sector would continue to reel under significant cascading taxes even under the GST regime.
A tax expert at a Big Four consulting firm backed the view, saying the total benefit by way of increased tax credits to most telcos is unlikely to exceed 0.5% of revenues as against increase in the tax rate by 3%, which would compel telcos to raise call charges and data rates, post-July.
Mathews had recently said a higher GST rate of 18% would make services more expensive and further stress an already bleeding sector.
The finance ministry, however, maintained that telcos would enjoy the benefits of full input tax credits (ITCs) under the GST regime, which they do not currently enjoy.
From July, “telecom services will attract 18% GST, which is a pure value added tax (VAT) as full ITCs of inputs and input services used in the course or furtherance of business by the telecom service providers would be available,” said the ministry. Further, it said, telcos can also avail of input tax credits of service tax paid on assignment of spectrum by the government in calender 2016 for a period of three years.
According to the government, since the entire credit can be taken in the same year under GST regime, the balance two-third credit of the previous year would be admissible in the current financial year itself “.
Such multiple incentives, it said, would hugely benefit telcos, in that, their liabilities to pay GST through cash would stand reduced to about 87% of what they paid last fiscal.
But Mathews said “it would not be correct to state that perceived benefit of taking credit in the same year instead of over 3 years had reduced the cost of telecom companies, given the miniscule amount of interest benefit that would actually come out of it over the current quantum of input tax credit.”
