Despite a higher headline tax rate for telecom operators under the proposed goods and services tax (GST), these companies will face a lower tax burden compared with the current regime due to availability of input tax credit (ITC), the government said on Friday. It added that the companies will need to recalibrate their cost and lower their prices to ensure the benefit of reduced tax incidence is passed on to the consumers.
Currently, telecom services are levied with 15% tax, which includes 0.5% each on account of Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC). “While service tax is a pure value-added tax, the above mentioned cesses are not. This is the reason that while no ITC (input tax credit) of SBC is available, the ITC of KKC is allowed to be set-off only against KKC. Therefore, both the cesses are turn-over tax,” the government said in a statement.
Further, these companies can’t claim credit of value-added tax (VAT) paid on goods and special additional duty (SAD) paid on imported equipment in the prevailing regime. However, come July, telecom services will attract an 18% tax but they will be allowed to avail full input tax credit of goods and input services used in the course of business. Similarly, these firms would also be eligible to avail credit of integrated goods and services tax (IGST) paid on both domestically procured goods as well as imported goods.
The availability of ITC would amount to as much 2% of the annual turnover for telecom service providers, the government said.