Cut prices, pass GST benefits to customers: Govt tells telcos

New Delhi: The finance ministry on Friday asked telecom companies to rejig costs and lower prices to pass on the benefits of tax rate reduction under GST to customers from July.

Under the Goods and Services Tax regime, which will come into being from July 1, telecom services will attract an 18 percent levy. Service providers can claim input tax credit (ITC) which will bring down the effective incidence of the levy.

"The telecom companies are 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," the ministry said.

At present, telecommunication services attract service tax of 14 percent along with Swachh Bharat Cess and Krishi Kalyan Cess of 0.5 percent each.

"As against the above, the telecommunication services will attract GST of 18 percent in the GST regime, which is a pure value added tax because full ITC on inputs used in the course or furtherance of business by the telecommunication service providers would be available," a finance ministry ministry statement said.

It said that at present telecom service providers are neither eligible for credit of VAT paid on goods nor of Special Additional Duty (SAD) paid on imported goods/equipment.

However, under GST, they would avail credit of IGST paid on domestically procured goods as also imported goods.

"As per some estimates, this additional Input Tax Credit would be as much as 2 percent of the turnover of the telecom industry," it said.

Also, currently ITC of service tax paid on assignment of spectrum by the government in 2016 can be availed by the telcos over a period of three years.

Under 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, it said.