GST will have marginally negative impact on telecom sector: ICRA

According to the new report by Credit rating firm ICRA, Goods and Services Tax( GST) will have marginally negative impact on telecom sector.

The report said the telecom services will become costlier with the increase in tax rate from 15 percent to 18 percent and will lead to lesser talk time on fixed denomination packs for prepaid users which account for almost 95 percent of the total user base in India.

For telecom tower industry the tax incidence will increase to 18percent from 15percent (service tax). However the same would be passed on to the telecom services sector, ICRA said.

ICRA said that in totality, the impact of GST on the telecom industry will be marginally negative.

However, the Finance Ministry has asked telecom service providers (TSPs) to rejig their prices and ensure that the increased availability of credit is passed on to the customers by lowering their costs, under the Goods and Services Tax (GST) to customers in the country from July this year.

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.After GST regime, telecom companies would be required to re-work their costing and credits availability and re-jig their prices and ensure that the increased availability of credit is passed on to the customers by lowering their costs," Finance Ministry said.

"As per some estimates, this additional Input Tax Credit would be as much as 2 percent of the turnover of the telecom industry. Further, ITC of Service Tax paid on an assignment of spectrum by the Government in 2016 is presently allowed to be availed of by the telecommunication companies over a period of 3 years," it added.

In the GST regime, the entire credit can be taken in the same year. Resultantly, the balance two-third credit of the previous year would be admissible in the Current Financial Year itself. All of these would reduce the telecom companies' liability to pay GST through cash to about 87 percent of what they paid in the last fiscal.