GST Impact: Telecom services, mobile phones to be expensive from July 1

Telephone bills and mobile handset prices will go up from July 1 when the new Goods and Services Tax (GST) regime kicks in, raising incidence of taxation on the telecom sector.

The GST Council on Friday finalised 18% tax on services rendered by telecom operators against 15% at present.

This translates into a Rs 3 increase on a Rs 100 recharge or a monthly rental but revenue secretary Hasmukh Adhia insisted that consumers will not burdened if telecom companies were to take into account the benefit of input tax credit they will get under GST.

However the industry said tax as a matter of principle is a pass through to consumers, and any increase in incidence of taxation will reflect in the monthly bills.

Mobile industry body COAI Director General Rajan S Mathews expressed disappointment with the GST rate announced for telecom.

"We had submitted to the government that consideration must be given to the present financial condition of the sector and any rate beyond the existing rate of 15% makes the telecom services more expensive for the consumer," he said.

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At present, telecom consumers are charged 15% in form of tax and cess over their phone bills. 

Consumer will not get upfront relief from the refund rules, the industry insisted.

"You have to differentiate between impact of GST on companies and consumers. Companies may or may not structure their tariff as per provision of refund but customers will have to pay 18% tax everytime bill is generated so consumers will be hit under GST," Mathews said.

The double whammy for consumers also includes an extra outgo of 4-5% on mobile phones in majority of the states.

As per mobile phone industry body, Indian Cellular Association (ICA), there are 36 jurisdiction in the country which includes 29 states and seven union territories. In 30 of these territories, the tax on mobile phones will nearly double to 12% leading to an increase in the prices.

Three states- Gujarat, Maharashtra, Madhya Pradesh - which account for 25% of pan India sales, have tax in the range of 12.5-16%.

In these locations discounts are already offered to counter grey market products and hence any change in prices is unlikely, an industry source said.

"While we are partially relieved that we are at 12% rate, it would be more appropriate to put mobile phones at the 5% rate so that the benefits of digital revolution could be savoured by our 1.2 billion citizens," ICA, National President, Pankaj Mohindroo said.

The handset prices will rise in places where tax incidence is up to 6%. Such locations account for 66% of the total sales.

The rest comes from states or UTs where current tax slab is in the range of 8-9%. These areas could possibly see rise in the mobile phone prices. 

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