Introduction

Telephone bills and mobile phones prices will go up from July 1 when the new Goods and Services Tax regime kicks in, raising incidence of taxation on the telecom sector. The GST Council finalised 18% tax on services rendered by telecom operators against 15% at present.

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.

Example

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.

This translates into a Rs 3 increase on a Rs 100 recharge or a monthly rental.

The industry said tax as a matter of principle is a pass through to consumers, and any increase in incidence of taxation will reflect in the monthly bills.

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