The Goods and Services Tax Constitutional Amendment Bill was passed in Parliament late yesterday and while it might take some time for the full implementation and the government is yet to decide the rate it will impose. However, a reports from PriceWaterhouseCooper and the SKP Group point out that the GST will broadly have a negative impact on the telecom sector. Here is how they might affect the telecom operators: - Bills may go up: Currently, telecom services are subject to a 14% service tax. The GST rate is expected to increase to anywhere between 18-20% and telecom companies may pass on this to customers. The GST has a provision for "Necessity Services" which can attract a lower rate. "Given the importance communication services in our lives, they could easily qualify as necessity services," SKP Group argues in its report. - Distribution of SIMs: Distributors and agents of the sale of SIM cards are exempt from service tax currently. Similar exemptions for them may not be available under the GST regime. "Under the current law, selling agents or distributors of SIM or Recharge Coupon Vouchers (RCVs) are exempt from Service tax. The liability to pay Service tax on the Maximum Retail Price (MRP) (which includes the agent’s/ distributor’s margin) is on the telco. As the Model GST law currently reads, in the absence of an MRP-based valuation for the telcos and specific exemption to the distributors, it appears that each leg of the sale of SIMs/ RCVs would be subject to…
