Executives involved in the process told ET that efforts are underway on a war footing to ensure all invoices issued to post-paid and prepaid customers from July 1 onwards include the 18% GST component applicable for telecom services.

At present, telecom services attract a lower 15% service tax.

"Complex software patchworks are being deployed to ensure telco IT billing systems reflect the change in invoicing from July 1," said a senior executive of a leading operator, requesting not to be identified.



This exercise is expected to spell significant additional cost for telcos, thereby compounding financial stress levels plaguing the debt-laden industry.

"Each pan-India operator may need to cough up at least an extra Rs 40-50 crore for overhauling existing billing systems and deploying additional manpower to ensure GST is captured at the state level and paid based on location of supply of telecom service along with the customer’s location," said a tax expert at a Big 4 consulting firm closely involved in the process.

Rajan Mathews, director general of Cellular Operators Association of India (COAI), which represents top phone companies Bharti Airtel, Vodafone India, Idea Cellular and Reliance Jio Infocomm, said, "The cost of putting in place the new GST compliance mechanism would be a huge additional burden for the troubled telecom industry which would take three to six months to smooth all the kinks in such compliance."

This is so because accounting, IT and billing systems will have to be realigned to the state level since GST for telecom services will be levied in 29 states and seven union territories.

The billing systems are currently aligned to the circle level since the Department of Telecom department has split the country into 22 licensed service areas or circles.

"Since primary book-keeping is now done at the circle level as mandated by DoT, GST will make matters more complex and expensive as telcos will have to deploy additional manpower and resources to migrate accounting systems from circle to state level to ensure tax compliance under the new system," Mathews said.

Bharti Airtel, Vodafone India, Idea Cellular, Reliance Communications did not reply to ET’s queries on their GST implementation preparedness.

Another senior executive of a leading mobile carrier said tax computation under GST would be particularly cumbersome for the prepaid business where there are intermediaries such as distributors and retailers.

A typical case in point, he said, would be computing GST on prepaid tariff vouchers.

"At present, service tax on prepaid vouchers is directly collected from customers and deposited to the government, but GST computation will be far more complex as the tax will need to be recovered separately by the telecom operator, the distributor and the retailer and passed on to the government," he said.

This problem, the executive said, will not exist in the post-paid mobile business where there are no business intermediaries. So the telco will directly collect GST from post-paid customers and pass it on to the government.

Telecom operators have already pointed out to the government that high GST rate will add to the burden of the industry, which is currently saddled with a debt of nearly Rs 5 lakh crore, and slow down planned network infrastructure roll-outs. This, in turn, could impact key government initiatives, such as Digital India and Cashless India, according to the industry.

The COAI has said that since telecom is an essential service under Essential Services Maintenance Act, 1968, the GST rate should have been aligned with the merit rate of tax applicable for essential products and services, which is way below 15%.

 24 Jun 2017, 08:47 AM