The GST council, a committee headed by Finance Minister Arun Jaitley and comprising representatives of all states which is tasked to fix tax rates on various goods and services, has decided that telecom services will attract tax rate of 18 per cent, three percentage points higher than the current 15 per cent services tax.
The industry has expressed its apprehension over the higher tax rate saying that it will further stress the already bleeding sector. "Telecom industry hails GST as an iconic reform but we are disappointed with announced rate of 18 per cent….It will augment the existing burden of the industry further. This is also likely slowdown the planned rollout of infrastructure across the country…," said Rajan Mathews, director general of industry body COAI.
The industry's hue and cry over a meager 3 per cent hike seems to be out of place. Since the entry of Reliance Jio last September, the sector has undergone a complete transformation. The tariffs for data usage have fallen to rock-bottom levels for all operators whereas voice calls are now free for not just Reliance Jio customers but also most postpaid customers of Airtel, Vodafone India and Idea Cellular.
In the case of postpaid customers, most of them have cut down on their mobile expenses by shifting to lower-priced plans. For instance, in August last year, market leader Airtel introduced new 'Infinity' plan for Rs 1,199 which offered unlimited voice calling (local, STD, and national roaming) along with 1 gigabyte (GB) of 3G/4G data along with 100 SMS per day.
In response to Jio, the company is offering 3 GB of 3G/4G data, unlimited voice calling (local, STD, and incoming roaming) and 100 national and local SMS per day for just Rs 499. For customers who's currently paying 15 per cent service tax on Rs 499, that is Rs 74.85 tax, will not mind paying Rs 15 extra because in the larger context, they are now paying substantially less for their postpaid plan - Rs 700.
For prepaid customers, the telcos might have to offer customers a lower talk-time as a slightly higher component of the prepaid packs will go into GST. For instance, customers recharging with Rs 100 pack will get about Rs 82.20 talktime as against Rs 83.96 now. The telcos will be slightly hit in the case of full talktime prepaid plans where they will have to shell out higher tax component from their pockets. The impact of GST on the telecom sector, and its health, is likely to be marginal.