GST: Telecom Operators Must Rework Costs To Pass On Benefits To Users, Says Finance Ministry
Finance ministry asks telecom operators to pass GST benefits to users.
Telecom companies will have to rework their costs to ensure the benefit of input tax credit available to them is passed on to customers, the finance ministry said on Friday.
The Goods and Services Tax (GST) Council has finalised 18 percent rate for telecom service providers as against the current incidence of 15 percent. Under the new indirect tax regime, service providers will get to claim input tax credit on services they provide.
“…The telecom companies are required to re-work their costing and credits availability and re-jig their prices and ensure that the increased availability of credit is passed on to customers by lowering their costs,” the ministry said in a release.
Rajan Mathews, director general of Cellular Operators Association of India, disagrees and questioned the benefits that the telecom sector would get from implementation of GST.
…When the finance ministry says you have to re-work your tariffs, what they are saying is you are getting some benefit, it should be passed on to consumers. We don’t see where that benefit is coming to the operator.Rajan Mathews, Director General of Cellular Operators Association of India
Telecom services at present attract a service tax of 14 percent, along with two cesses—Swachh Bharat Cess of 0.5 percent and Krishi Kalyan Cess of 0.5 percent. They can set off input tax credit of Krishi Kalyan Cess against this cess, but no credit was earlier available for Swachh Bharat Cess.
Telecom operators are not eligible to claim credit of value added tax (VAT) paid on goods and special additional duty (SAD) paid on imported goods.
According to some estimates, the additional input tax credit would be around 2 percent of the turnover of the telecom industry, the finance ministry release said.
“We will have to look at the details how the ministry came up with this computation…18 percent is 3 percent more that the consumers will now have to pay, and tariffs are already at rock bottom, so I am not sure what it means in terms of rework the tariffs,” said Mathews.
Currently, credit of service tax paid on the spectrum allocated by the government in 2016 is allowed to be availed over three years, which could be availed in the same year under GST. “All of these would reduce the telecom companies’ liability to pay GST through cash to about 87 percent of what they paid in the last fiscal,” the release said.
L Badri Narayan, partner at Lakshmikumaran & Sridharan, a tax and law advisory, told BloombergQuint that telecom companies could not utilise the input credit on spectrum charges, and had to pay out tax in cash as well.
“Now, by removing the restriction on how much credit can be utilized in any year on capital goods and input services, telecommunication companies will benefit by being able to utilize all accumulated credit against their output tax. This will improve the working capital estimates for them in GST,” Narayan said.