The telecom sector’s woes are expected to accelerate once the Goods and Services Tax is implemented in July. Given that the industry operates in 22 licensed service areas, it will be faced with multiple jurisdictions while paying GST. In order to avoid this the industry wants to be treated like banks where the revenues are aggregated in one place and then taxed because branches operate in different states.
In an interview with Moneycontrol, Rajan Mathews, Director General of Cellular Operators Association of India, said: “We pay our licence fee and taxes on a LSA (licensed service area) basis. So for the LSA of Delhi, there are three states (Uttar Pradesh, Haryana and Delhi). For Delhi, how many rates would apply given that Delhi is one service area? Similarly, place of origin is also an issue for SIM cards. Give us the same thing you allow for banks. We aggregate everything in one place if we are granted a central clearing mechanism.”
Read All About GST from Beginning
With the rollout of GST in July, the industry also fears that it is the rate of effective tax which will move up from the current 15 percent to 18 percent or more. The sector’s been lobbying hard with the government for lower rates since it is classified as an essential service. The industry has witnessed a sharp fall in profitability and revenues in the last two quarters and higher.
Mathews said: “There are two issues that are emerging – first is the rate and the other is the implementation of GST. If the rate goes above 15 percent, then it will have to be passed on to the consumer. We’ve been saying put us in Category I in the construct of GST, as we are an essential service. Therefore, we should be taxed at a preferential rate of 12 percent.”
The other issue that the industry has been raising with the authorities is the offset mechanism. The industry has been asking for the inclusion of petroleum products for the offset mechanism. Explains Mathews, “When there is no offset mechanism, it pushes up the effective rate of tax. Since we use a lot of diesel we are asking for petroleum products to be used as offset. The moment we have power, the offset can be taken away.”
Money Control, 9 March 2017
