Everything about GST: How will it impact telecom and handset industry

Good and Services tax( GST) was first introduced by P. Chidambaram the former Finance Minister in 2006 , it was initially implemented on 2010 but got delayed. However, in 2016 the bill got clearance from both the houses of the Parliament. The Government estimates that it will radically transform the $2-trillion economy and help boost GDP by up to 2 percentage points.

Finance Minister Arun Jaitley has recently said that the Goods and Services Tax (GST) Bill, which is to exempt the daily-use commodities from the levy, is going to be more efficient and a consumer friendly taxation system.

Meanwhile, the GST council has finalized the tax slab for all sectors.

Sivarama Krishnan, Partner and Leader- Cybersecurity, PwC India said "GSTs information architecture calls for data aggregation within enterprises and also requires information exchange across multiple parties (private enterprises, ASPs, government etc.). That consequently introduces new information and business risks. Unauthorized changes to data, segregation of duties, data leak, and bidirectional information flow between parties are some of the risks that all stakeholders will need to assess and mitigate in the short time-window to go-live."

Sanjay Sethi(CEO and Co-founder, ShopClues) giving his perspective on GST rollout "Though very supportive of the GST reforms, we don't agree with requiring marketplaces to collect 1 percent TCS. It is a clear delegation of government's responsibility to corporates. It adds burden to already stretched resources of marketplaces who support upward of 5 lakh MSME and SME businesses. Plus the need for all small and micro small businesses to register for GST for eCommerce is an additional burden that MSME below Rs.20 Lakh turnover doesn't have to incur in offline businesses. This adds more friction to small businesses that want to come online. This is not the level playing field between offline and online businesses we expected from the government via GST."

Now the question that arises here is, what exactly is GST?

It is a tax levied when a consumer buys goods or services like a thing we buy and any service we avail is subject to a multiple of taxes that can be different from state to state.

GST will replace the existing levies such as the luxury tax, Vat, excise duty, central sales tax and entertainment tax with a single tax and through this consumers should benefit from transparency in taxation should deter Governments from indiscriminately increasing taxes as there is bound to be the public backlash.

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How is it going to impact telecom?

As we all know that the telecom sector is in under pressure due to increasing pressure after the entry Mukesh Ambani-led Reliance Jio and a debt of about Rs. 4.6 lakh crore and now GST council has fixed 18 percent tax rate on telecom services, which is three percent higher than the current 15 percent services tax.

The sector is also very disappointed with the new tax slap and said the present financial condition of the sector and any rate beyond the existing rate of 15 percent makes the telecom services more expensive for the consumer. I

"It will augment the existing burden of the industry further. This is also likely slow down the planned rollout of infrastructure across the country and will have an impact on flagship govt initiatives like Digital India, Cashless India, and others," said Rajan S Mathews, Director General, COAI.

Similarly, Uday Pimprikar, Tax Partner, EY India said that "Imposing 18 percent tax on telecom is likely to increase the overall tax burden and therefore may have a negative impact on the consumers' expenses. It needs to be appreciated that telecom is a necessity and an extremely important infrastructure service & resource and thus deserves more sensitive treatment."

Impact on handset industry?

The council has fixed 12 percent tax rate on mobile phones.

However, under the new rule, all phones which are manufactured locally will get costlier and imported phone will get cheaper.

Narinder Kumar, Lead Analyst, Telecom Practice, CyberMedia Research said "currently 75 percent of mobile handsets are manufactured in India, a price of these handsets will increase by at least 5 percent post GST implementation. The price of imported mobile handsets will witness a downward trend as they are currently attracting higher taxes than proposed GST."

He said,"continuing current import duty structure will mitigate benefits of 'Make in India'. Higher import duty plus GST on imported mobile handsets seems a potential way to safeguard domestic manufacturers. On top of it, revision of GST in future based on category and price segments will be beneficial for an industry as well as consumers."

Pardeep Jain, Managing Director, Karbonn Mobiles said that, "we feel that in keeping with the objectives of "Digital India" the ideal GST rate should have been 5 percent. The additional price burden due to GST rate being fixed at 12 percent will have to be unwillingly passed on to the consumers to sustain profitable growth for our business."

He added, "more importantly, we expect the Government to bring in a substantial duty differential between locally manufactured & imported mobile phones. Karbonn duly responded to the "Make In India" call of the Government by setting up state of the art manufacturing plants. If the duty differential is not created the local manufacturing plans will face a serious viability challenge."

Tarun Pathak, associate director at Counterpoint Research told Gizbot that, "we assume that Government will bring some kind of incentive for those who are assembling phones here."

However, Aruna Sundararajan, secretary IT and telecom said that MeiTY will push for imposing a basic customs duty (BCD) on top of GST rate on imported devices to ensure that making phones locally would continue to be cheaper for companies compared with imports, ET reported.

The GST is all set to be launched on July 1 and will have rates of 5, 12, 18 and 28 percent.