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A New Tax Regime Ushered In

July 1, 2017 is a defining day in India’s history of tax reforms. No country as large and complex as India has attempted a tax reform of this scale. The net impact of GST on prices of telecom products and services remains to be seen.

July 1, 2017 is a defining day in India’s history of tax reforms. No country as large and complex as India has attempted a tax reform of this scale. The net impact of GST on prices of telecom products and services remains to be seen.

Telecommunication services presently attract service tax of 14 percent along with Swachh Bharat Cess of 0.5 percent and Krishi Kalyan Cess of 0.5 percent. While service tax is a pure value-added tax, cesses are not. This is for 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 turnover tax.

The telecommunication services will attract GST of 18 percent in the GST regime, which is a pure value-added tax because full ITC of inputs and input services used in the course or furtherance of business by the telecommunication service provider would be available.

Moreover, presently 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, telecom service providers 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. Further, ITC of service tax paid on assignment of spectrum by the government in 2016 is presently allowed to be availed of by the telcos over a period of 3 years. In the GST regime, the entire credit can be taken in the same year. Resultantly, the balance two-thirds credit of the previous year would be admissible in the current financial year itself. All of these would reduce the telcos’ liability to pay GST through cash to about 87 percent of what they paid in the last fiscal.

In the early hours of July 1, after the launch of the GST Bill, in another announcement, a basic customs duty (BCD) of 10 percent has been imposed on cellular mobile phones and specified parts of cellular mobile phones like charger, battery, wire headset, microphone and receiver, key pad, USB cable, etc.

The IT companies are ensuring that they are able to completely capitalize on the GST rollout and are facilitating Indian enterprise to be compliant with the new GST regulations. Cloud-based service providers are also expected to gain from the huge storage requirements and the significant requirement of computing environments (platforms) for test and development of GST compatible application. For data center service providers, tapping into this surge in demand would be the key.

Some business leaders and thinkers respond on the impact of India’s Biggest-Ever Tax Overhaul on the telecom industry.

“The presence of BCD will ensure protection to the domestic industry and encourage the Make in India campaign. It will save foreign exchange and encourage youth employment. Foreign goods will not be able to compete with domestic Indian products until and unless, manufactured in India. This will also lead to increase in investments, thus leading to an overall economic growth of India.”

Sanjeev Bhatia
ZOPO Mobile India

“The goods and services tax (GST) is seen as one of the biggest tax reforms in India in a bid to unify 29 states, 1.3 billion people, and create a common market zone. The nationwide single tax GST is set to replace a mix of state level and national taxes. We at Tata Communications have been one of the early adapters to have embarked on the GST implementation journey well in advance of the go-live date. A cross-functional task force that included teams from billing, sales support, customer delivery, supply chain, business operations, IT and process experts along with tax champions, was formed to evaluate the impact on revenue and costs and to adapt our processes and IT systems in accordance with the changes required to seamlessly implement GST.

“Tata Communications’ global operations, providing complete communication solution to global customers, required substantive changes in their processes and IT systems to adapt to the new GST system. Our aim was to create robust IT systems to ensure seamless reporting and compliance under the new GST scheme. To ensure IT readiness, we undertook a balanced approach and looked at both in-house development and outsourcing; effecting parallel changes aligned to the “ONE GST” change template. With only a few hours left for the roll out of GST, we, at Tata Communications, are well-equipped to deal with the change.

“We believe that the government is moving in the right direction in implementing a unified, indirect tax regime which will help in ushering in transparency and seamless execution capabilities through digitization.”

S Nageswari
Senior Vice President-Finance,
Tata Communications

“GST will give a major boost to the Make in India initiative of the government by making goods or services produced or provided in India competitive in the national and international markets. Further, all imported goods will be charged with integrated tax (IGST), which will be equivalent to Central GST+State GST. This brings parity in taxation on local and imported products. Under the GST regime, exports will be zero-rated in entirety, unlike the present system where refund of some taxes is not allowed due to fragmented nature of indirect taxes between the center and the states. This will boost Indian exports also. All taxes paid on the goods or services exported or on the inputs or input services used in the supply of such export goods or services shall be refunded.”

Manish Sharma
Minda Automotive Solutions Limited

“With today’s customs duty increase on CBU imports of mobile handsets, the government has shown its intent to support Make in India initiative. We are thankful to the government for this bold step just before implementation of GST.”

Rajeev Jain
Director & CFO,
Intex Technologies Ltd.

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