Telecom faces several points underneath the current oblique tax regime and, subsequently, the sector has high hopes from the proposed GST regime.
Touted as India most transformative tax reform in a long time, the products and companies Tax (GST) has the potential so as to add as many as 2 share points to the GDP, whereas also improving the ease of doing business. When carried out, GST is anticipated to usher in a harmonised nationwide market of products and providers, and lead to a simplified, assessee-friendly tax administration system. However, there are sector-specific issues arising from aspects of the model GST legislation that are required to be addressed by the government before the introduction of the ultimate legislation.
Telecom is one of the most fundamental and demanding infrastructure companies and has a massive outreach to greater than a billion subscribers across geographical boundaries. Telecom faces a number of issues underneath the current indirect tax regime and, subsequently, the sector has high hopes from the proposed GST regime. However, the model GST regulation doesn’t seem to bring an end to the problems being faced by the telecom sector.
Compliance: Below the GST regime, states get the power to levy tax on services additionally and, therefore, requiring a service supplier to take state-smart GST registration as a substitute of a centralised service tax registration under the present regime. The multiple state-sensible registration would tremendously increase efforts and value of compliance for telecom companies (telcos). In actual fact, telcos would be required to file not less than three returns on a monthly basis per registration (i.e. state-wise registration) below GST, not like single centralised registration on a pan-India basis and merely 2-three returns per year under the current oblique tax regime.
Exclusion of petroleum products: Another major impression on the telecom sector is on account of deferment of applicability of GST on petroleum products. The telecom sector has to take care of round the clock uninterrupted supply of services, which necessitates the use of energy generators. Provided that the applicability of GST on petroleum products has been deferred, the identical would continue to attract central excise duties and states sale taxes. This might lead to huge cascading affect on the telecom sector.
Non-alignment of circles with states: The telecom sector is regulated by the Telecom Regulatory Authority of India (Trai) and various licences required to provide telecom providers are granted by the Division of Telecommunications (DoT). Telcos are required to obtain circle-clever licences from DoT for providing some telecom services such as cell telephony. Whereas for services like national lengthy distance (NLD) companies and international long distance (ILD) services, licences are obtained on a pan-India basis. Circle-sensible licences should not aligned with the geographical boundaries of states and one circle could cowl multiple states. For instance, the Delhi NCR circle covers the native areas served by Delhi, Ghaziabad, Faridabad, Noida and Gurgaon telephone exchanges, i.e., covers Delhi and elements of Haryana and Uttar Pradesh. At the moment, telcos maintain circle-sensible accounting to account for circle-smart revenue for fee of licence price. Whereas, below the GST regime, the accounting can be required to be maintained state-smart.
Further, there exist various disparities between telecom rules (governed by Trai) and GST provisions. For instance, in case of roaming recharges for prepaid cellular telecommunication providers, subscriber of 1 circle (i.e. house circle) buys recharge in the roaming circle. As per place of supply provisions beneath the model GST law, the place of supply can be the roaming circle. Whereas as per the regulatory requirement, such fees are required to be accounted in the house circle. Additionally, as mentioned earlier, sure circles comprise of multiple states (like Delhi NCR) and in addition sure cities of the identical state fall underneath different circles (like Mumbai and Maharashtra and Goa). In such scenarios, sure intra-circle supplies as per regulatory requirement can be thought-about as inter-state supplies below GST and vice-versa. These disparities between telecom rules and GST provisions would lead to complexities in accounting and these complexities would additional improve if GST charges across states differ.
Self-supplies similar to intra-circle termination and intra-circle roaming services for the same operator, particularly in case of multi-state circles, could develop into taxable below GST. At present, telcos do not have any mechanism to track intra-circle termination and roaming provides. Thus, this is able to additionally improve complexities for telcos under the GST regime, including the valuation of such self-supplies.
So, because of variance in regulatory necessities and GST provisions including non-alignment of circle areas, endeavor compliance and reconciliation can be large and complex process for telcos.
The above talked about issues and complexities would necessitate telcos to make large technological changes in the IT and accounting programs to take care of state-clever accounting.
The model GST legislation supplied a particular place of provide for telecom services; nonetheless, the same entails numerous complexities.
In case of B2B provides of leased circuit services (NPLC, IPLC, and so forth) and fastened line companies (being the place where the leased circuit/telecommunication line is installed), it can be troublesome to apportion the value of such companies the place lump-sum consideration is charged for a number of state areas.
For prepayment services the place cost is made by way of recharge vouchers or e-top ups (other than e-payment), place of provide is the placement the place prepayment is obtained or recharge vouchers are bought. Prepaid vouchers, etc, are bought by telcos by a distribution channel consisting of a large number of distributors and retailers. Given the distribution chain concerned within the sale of recharge vouchers, the location where prepayment is acquired for recharge vouchers might be completely different from the location the place such recharge voucher is sold. As an example, the telco received R45 as a consideration (prepayment) at its head office in Delhi for a voucher having MRP R50 from a distributor located in Noida. In this case, it isn’t how to find out the place of provide as prepayment is received in Delhi, however the voucher is bought to a distributor in Noida. Accordingly, this could lead to ambiguity with regard to value of provide and tax legal responsibility for the distribution chain.
In view of the above complexities in determination of place of supply of telecom services, it is suggested that the place of provide ought to be aligned to the final rule, i.e., the handle of the service recipient as per data of the service provider. Having stated that, the place of supply being the service recipient address would burden telcos to maintaining their database up to date on an actual-time basis.