Kolkata: Mobile phone companies are upset about the possibility of an increase in the tax rate on their services under the proposed four-tier Goods and Services Tax structure. A higher rate would make telecommunications more expensive for users, hit the government’s Digital India ambitions and deal a blow to a financially stressed industry, they warned. Telecom services are currently taxed at 15%.
On Thursday, the government unveiled a four-tier GST structure, with rates of 5%, 12%, 18% and 28%, but has yet to announce segment wise rates. Industry executives expect the tax on telecom services to be 18% - tax at 12% is unlikely as it will mean a cut in revenue for the government. Nevertheless, the industry is seeking a lower rate.
“Since telecoms is an essential service under Essential Services Maintenance Act, 1968, it was imperative that the GST rate should have been aligned with the merit rate of tax applicable for essential products and services, which is way below 15%,” said Rajan Mathews, director-general of the Cellular Operators Association of India. COAI represents Bharti Airtel BSE -0.89 %, Vodafone India, Idea Cellular BSE -2.11 % and Reliance Jio Infocomm.
A higher GST rate, he said, would hurt the common man the most and stymie the growth of this critically important infrastructure sector. “It will have an inflationary effect on the overall cost of provisioning telecom services and increase costs for subscribers,” Mathews told ET. Consumers of mobile services would see an effective 3% rise in monthly cellphone bills with the GST rate pegged at 18% - this means, a consumer now paying a monthly bill of Rs 1,000 will have to spend Rs 30 more.
Mathews said the continuation of central excise duties and state sales taxes on petro-products would also have a cascading impact on telecom companies, especially tower operators since the telecom sector is the second-biggest buyer of diesel after the railways.
On Thursday, the government unveiled a four-tier GST structure, with rates of 5%, 12%, 18% and 28%, but has yet to announce segment wise rates. Industry executives expect the tax on telecom services to be 18% - tax at 12% is unlikely as it will mean a cut in revenue for the government. Nevertheless, the industry is seeking a lower rate.
“Since telecoms is an essential service under Essential Services Maintenance Act, 1968, it was imperative that the GST rate should have been aligned with the merit rate of tax applicable for essential products and services, which is way below 15%,” said Rajan Mathews, director-general of the Cellular Operators Association of India. COAI represents Bharti Airtel BSE -0.89 %, Vodafone India, Idea Cellular BSE -2.11 % and Reliance Jio Infocomm.
A higher GST rate, he said, would hurt the common man the most and stymie the growth of this critically important infrastructure sector. “It will have an inflationary effect on the overall cost of provisioning telecom services and increase costs for subscribers,” Mathews told ET. Consumers of mobile services would see an effective 3% rise in monthly cellphone bills with the GST rate pegged at 18% - this means, a consumer now paying a monthly bill of Rs 1,000 will have to spend Rs 30 more.
Mathews said the continuation of central excise duties and state sales taxes on petro-products would also have a cascading impact on telecom companies, especially tower operators since the telecom sector is the second-biggest buyer of diesel after the railways.