Mobile users will have to shell out an extra Rs 30 towards if their monthly phone bill is Rs1,000 with the government imposing a goods & services tax (GST) of 18% on telecom services.
This may have an inflationary effect, hit consumption demand and negatively impact telco earnings, going forward, say analysts.
At present, telecom services attracts 15% service tax, but once the new 18% GST rate kicks in, consumers will see an effective three percentage point rise in their phone bills. This means, a consumer now paying a monthly bill of Rs 1,000 will have to spend Rs 30 more.
Likewise, the effective talk-time for prepaid customers will stand reduced. For instance, for aRs 100 prepaid voucher, the effective talk-time will now be Rs 82 instead Rs 85.
Ex-CEO of Bharti Airtel Sanjay Kapoor was baffled by the decision, especially at a time when the telecoms sector is passing through extreme stress. “The decision is a surprising one, given that you have an inter-ministerial panel looking into the financial woes of the sector, and the same time the government choosing to slap a higher GST rate that will hit consumption and negatively impact telco revenues,” he said.
Mobile phone companies were predictably disappointed by the decision as they were expecting some relief on the GST front, given the high debt levels of the telecom sector, which continues to shackled by a brutal price war triggered by Reliance Jio Infocomm’s entry.
The Cellular Operators Association of India, the industry body representing India’s biggest telcos such as Bharti Airtel, Vodafone India, Idea Cellular and new entrant Reliance Jio Infocomm, had repeated asserted that since telecoms is an essential service under Essential Services Maintenance Act, 1968, it was imperative that the GST rate should have been aligned with the merit rate of tax applicable for essential products and services, which is way below 15%.