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How has GST impacted the telecom sector

  • Highlights

  • Telecom operators to pay GST at 18% as opposed to the previous slab of 15%

  • Input tax credit to refund the tax paid on purchases

  • Framework changes required to report revenues in all the states and Union Territories

The Indian telecom sector contributes 6.5% to the GDP and is an essential sector in the economy. It has witnessed significant upheaval since the implementation of GST in 2017. Before GST, telecom operators paid service tax of 15%, which has now increased to 18%. Apart from the increased tax burden, new compliances have added to the woes of operators. Let's consider these impacts in detail and the need for further improvements for telecom operators.

- Apart from a standard tax rate, telecom operators pay GST on levies as well. These include spectrum fee, license fee, spectrum usage etc. When combined, operators pay nearly 30% of their revenue in taxes. Telecom operators have requested for tax exemption on these levies.

Additional Read: Documents required for GST registration

- GST allows for an input tax credit. In simple terms, it means that the tax paid on purchase can be used to offset the tax on the sale. However, the industry is currently on a decline, as the average revenue per customer has decreased. Prices are competitive, and operators are unable to pass their tax liabilities to their customers.

Due to this, almost Rs. 30,000 crore is locked on an industry level as an input tax credit. The industry would hugely benefit if they receive it as a refund.

- In continuation of the previous point, telecom companies are unable to set off their taxes against fuel. All telecom companies use diesel as a fuel, and it attracts almost 100% taxes. Diesel has been kept out of the purview of GST and as a result, they are unable to utilise it to their benefit.

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- Telecom services are provided to customers under 22 circles spread across the country. Their entire infrastructure is designed to operate under this framework. The GST system mandates them to report revenues as per states and Union Territories. Due to this requirement, operators are called to spend and hire an additional workforce to stay compliant.

Additional Read: GST advantages and disadvantages

- Earlier telecom companies were registered centrally and would file their returns annually. As per the GST system, they have to register and submit within each state. GST requires them to file their returns 2-3 times in a month. Further, the filing has to be done transaction-wise for both income and expenditure. It is a huge challenge as there are large numbers of transactions in this sector. It is time, and resource consuming that has increased the sector’s operational burden.

- GST allows telecom operators to avail tax credit on imported equipment. They can also claim refund of IGST paid on domestic products and equipment. This was not permitted before GST.

Conclusion

GST is a game changer that is slated to revolutionise the industry, and in turn, the economy. It eliminates several challenges of the previous taxation system and will become more robust with suitable changes in the future.

Additional Read: What is GST

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