It was way back in 1994 that the service tax was introduced in the telecom sector. Since then the sector has grown to be the largest contributor to the exchequer by way of the service tax. However, the service tax rates of 14% compare adversely with the prevalent rates in China. The total taxes borne by the telecom sector including the service tax are in the range of 22 to 32%. While the GST introduction will lead to a number of taxes getting subsumed under its expanse, the real impact on telecom specific charges and fees remains to be seen.
The telecom sector can be broadly classified under three heads; the telecom service providers, infrastructure providers and equipment manufacturers. In the current scenario the tower companies which are a part of the telecom infrastructure are involved in litigations with regard to the accrual of the tax credits. There is a requirement to ensure seamless input tax credits for the telecom sector so that the ultimate tax on consumption of such services is low.
The telecom sector has been embroiled in some other litigation related to the taxation also. The distributors are sold the SIM cards and prepaid vouchers at a discount from the telecom companies. The tax is paid on the full amount by the companies. However, the revenue authorities have mandated withholding of tax on the dealer margins also by the telecom company. This amounts to kind of double taxation. How this issue gets addressed in the GST regime is awaited.
Another similar contentious issue is the taxability of the interconnect usage charges as royalty under the tax laws. The amended finance act 2012 has changed the definition of royalty to include transmission by cable, satellite, and optic fibre etc. The telecom industry plans to take up the issue redressal under the GST rollout and reinstate the earlier definition of royalty.
Another aspect that needs to be addressed with the GST introduction is the high interest charge of 30% on delayed service tax payments. There should be one standard rule for delay in GST payment irrespective of the industry type. This may be addressed through a common platform for such rulings.
The telecom industry is expecting the GST to keep the services affordable, through lower taxation on both services and mobile phones. The GST will most likely be a single rate for both the goods and services. The increase from the current levels of 14% service tax is going to make the services expensive. Also, most of the smartphones are imported and are subject to concessional tax rates. The GST taxes are likely to be paid at the stipulated GST rate which may make the mobiles costlier.
Given the nature of the telecom service it is very difficult to determine the place of consumption of the service. However, supply rules for telecom services are clear and distinct on foreign lands. India also needs distinct place of supply rules for the telecom sector under the envisaged GST.