The finance ministry today 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 per cent 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 a service tax of 14 per cent along with Swachh Bharat Cess and Krishi Kalyan Cess of 0.5 per cent each. "As against the above, the telecommunication services will attract GST of 18 per cent 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 statement said.

It said that at present telecom service providers are neither eligible for the 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 per cent of the turnover of the telecom industry," it said.

Also, currently ITC of service tax paid on the 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 per cent of what they paid in the last fiscal, it said.

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