Telecom sector disappointed at the announced GST rate of 18%: COAI

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  • Issues related to financial health of the telecom sector should have been considered 
  • While deciding the rate, Telecom as a sector may have been considered as part of essential services
  • Industry has still not recovered from the burden of spectrum purchase, license fee etc 

19 May 2017, New Delhi: The Telecom industry has always hailed GST as an iconic reform, as it will bring in a new era of ‘one nation-one tax’ for the country. We still believe that it will enhance ease of doing business and streamline tax collection and compliance for the industry. However, we believe that the rate announced at 18% will further stress the already bleeding sector.

“Telecom industry hails GST as an iconic reform but we are disappointed with announced rate of 18%. We had submitted to the govt that consideration must be given to the present financial condition of the sector and any rate beyond the existing rate of 15% makes the telecom services more expensive for the consumer. It will augment the existing burden of the industry further. This is also likely slowdown the planned rollout of infrastructure across the country and will have an impact on flagship govt initiatives like Digital India, Cashless India and others,” said Mr. Rajan S Mathews, Director General, COAI

During several rounds of meetings with the GST Council, the representatives of the industry have brought forward issues, related to smooth operations and expansion of the telecom services such as place of business, centralised settlements, and multiple jurisdiction in one LSA, Place of Supply (PoS), MRP based valuation and clarity was sought.

Moreover, for the purpose of licencing, the country is divided into 22 telecom service areas or circles, for which the operators are given an operating licence for each individual circle. GST sees only 29 states and seven union territory divisions. Around 12 circles have multiple states as part of their territory while five states have multiple circles in their territory. Dichotomy between area covered by telecom circles and state boundaries would create significant IT and accounting challenges for operators.

It is noteworthy here that the telecom sector pays around 30% of its earnings in taxes and levies, including spectrum usage charge and licence fees. Due to a number of reasons, including hyper competitiveness, the sector has come to a point that can be seen as just short of needing a bail-out. Total debt for the sector is at around INR 4.5 lakh crore, while revenues are around than half this. Despite this, tariffs have been going in the opposite direction of inflation. 

“As an essential service, the telecom industry needs some benefits and tax relaxation in order to provide a seamless and hassle-free service. The industry has worked tirelessly and has fulfilled its motto of connecting everyone till the last mile connectivity,”Mr. Mathews added.  

Considering the massive impact of GST the operators have already initiated the registration process involving migration to the GST regime. However, clarity is still awaited on certain aspects of the published rules and the implementation is highly dependent on IT compatibility which requires sufficient time. The telecom industry is committed for the successful rollout of the GST at its scheduled date of 1st July, provided that the submissions made by the industry and clarifications sought, are given in a timebound manner.

GST still remains iconic in many ways, besides providing the right method for calculation of tax and paving the way for better business.  COAI is hopeful that GST will ensure a mechanism to bring down ancillary and peripheral costs of streamlining other services and the industry remains committed for a fully empowered and connected India.