Even as the impact of the goods and services tax (GST) on the telecom sector is likely to be neutral, ratings agency Fitch expects it can impact the subscriber additions by the telecom operators.
The agency expects GST impact on telcos to be “largely credit neutral”, as the companies will most likely pass through the higher tax rate. It, however, expects that the availability of input tax credits will “slightly reduce” operating costs and capex of the operators.
Telecom services are being charged at a rate of 18% under GST, whereas earlier they attracted a service tax and cess of 15%.
However, Fitch said, “We also believe that the incumbents could face lower subscriber additions over the next 12 months as some distributors may not be GST-compliant and hence, will not be able to issue new SIM cards.”
It also anticipates some slowdown in voice and data usage in the short term, as most consumers are prepaid users and top up their account by a fixed amount each month. However, subscribers are expected to return to their normal usage levels within six-nine months.
The GST impact on Bharti should be credit neutral, as such incumbents will pass on the additional GST to consumers, it said, adding that the competition could heighten if new entrant Reliance Jio decides to absorb the higher taxes to keep its tariffs cheaper than the incumbents and garner a larger subscriber market share.