GST Impact GST Impact

Impact of GST on Telecom sectorImpact of GST on Telecom sector

India's telecom industry has created nothing short of a revolution when it comes to connecting the country. India had 1 billion active mobile connections in January 2018 and as per a survey conducted by IMAI-Kantar IMRB, mobile internet users are expected to reach 500 million by June 2018.

However, over the last few years, the industry has been hit with a double whammy. First, the entry of Reliance's Jio led to a shakeout with several small players exiting the business and a squeeze on operator margins. More recently, the introduction of the Goods and Services Tax in 2017 led to collective groans as the GST rate on the telecom industry was set at 18%, 3% more than the 15% paid under the previous tax regime. While the headline rate is high, Central Telecom Minister Manoj Sinha had stated that the tax rate after accounting for input credits will be closer to 16%. Telecom operators have so far been compelled to absorb the costs due to the aforementioned hypercompetitive conditions. The additional compliance load on the service providers is also quite extensive for the players to be unenthusiastic about the new tax regime.

Monetary Impact

Fuel not under GST

India's 75% of cell towers are still run on diesel. Diesel attracts taxes of ~100% and hence is a huge component of the fuel costs. Since fuel has been kept outside the ambit of GST, India's telecom infrastructure companies cannot set-off their tax liabilities against the taxes paid on fuel.

Liabilities due to Reverse Charge Mechanism (RCM)

As per the GST provisions on RCM, if a registered dealer purchases goods or services of more then Rs 5,000 per day from an Unregistered Dealer (URD) within the state, the registered dealer is liable to pay GST on behalf of the URD. While this provision has been suspended up to 30th June 2018, if implemented, it puts a substantial monetary and compliance cost on large registered dealers and especially for telcos as they regularly employ services of small dealers for the maintenance of cell towers.

Compliance Impact

Circle vs. State

Telcos are required to acquire licenses from the Department of Telecom for providing various services. While International Long Distance (ILD) and National Long Distance (NLD) licenses are provided on a pan-India basis, some telephone licenses are provided on a circle basis. These circles may include several states or parts of them. For example, Mumbai city is one circle while Maharashtra & Goa (ex-Mumbai) is a separate circle. Companies so far have maintained circle-wise accounts to accurately account for license charges, fees, etc. To comply with the GST tax filing rules, they have had to change their accounting and apportion costs and fees.

Filing Tax Returns in Every State of Operations

Previously, each telecom operator had one central tax registration number and filed returns 2-3 times a year. However, under the GST norms, telecom operators are required to obtain a GST Registration Number for each of the states they have operations in and file 2-3 returns in every state per month.

Disparities between TRAI and GST

There are some disparities in certain Trai provisions and the GST law. For Example, if a prepaid customer buys a recharge card outside his 'home' circle, as per GST, the service is deemed to be provided in the 'roaming' circle and should be accounted there. However, as per the Telecom Regulatory Authority of India (TRAI), the service should be recognized in the 'home' circle. This lack of clarity in addition to the overlap in states and circles mentioned above is a messy tangle to unravel.

Watch: Bharti Airtel's Head of Indirect Taxes Anil Bahl's take on GST and its Implications for the Telecom Industry

GST Solutions for Business Managers

We understand that although GST was rolled out a year back, the numerous requirements are bound to make a business-owner or the one implementing its provisions to become nervous. Do get in touch with us if you want any additional clarification on the Effects of GST on the Telecom Industry or a complete solution for all your compliance requirements.