GST – Telecom: Increased stress–Business Line–25.06.2017

  1. The implementation of GST, at the rate of 18 per cent, could stress the ailing telecom companies for a short period.

  2. Presently, the telecom players are taxed at 15 per cent.

  3. The increase in tax could pressure the margins of telecom players, who are already facing intense competition.

  4. For instance, the leading player Bharti Airtel has reported revenue and profit decline of 12 and 72 per cent respectively for the quarter ended March 2017. Other players have also suffered a similar fate. High debt due to spectrum acquisition, to stay competitive, is also causing distress.

  5. Therefore, a hike of 3 per cent in tax will have a negative impact as companies are likely to struggle to pass on the hike to their customers, given the intense competition.

  6. In a competitive environment, customers are unlikely to be willing to bear the extra cost, shifting the burden to the telecom service providers.

  7. However, on the bright side, companies will be able to avail input tax credit for expenditure incurred on capital equipment (capital goods), which can reduce the impact of tax to some extent.

  8. Also, the biggest challenge for the industry is the increased compliance requirement and multiple registrations procedures. For instance, the National Capital Region (NCR) circle, comprises three States. Under the GST regime, a telecom company will require three different registrations in the place of one previously. This could lead to increase in costs due to higher compliance charges as multiple authorities carry out the assessment. However, over the long run, GST could bring down the cost for telecom players, neutralising the incremental impact of tax.

(This article was published on June 24, 2017)

via GST – Telecom: Increased stress | Business Line

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