Impact of GST on telecom sector.

Issues that telecom sector are going to face.

Compliances-

The telecom sector is presently required to pay service tax on the services provided by it.

Also as per service tax , they generally obtain centralised registration. However, after implementation of GST, they have to obtain state-wise registration.

 Having said that presently they have to file merely two three returns annually.

 Now due to centralised registration, they have to file at least three returns on a monthly basis per state. This would tremendously increase the compliance cost and efforts.

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 services are granted by the Department of Telecommunications (DoT).

Telcos are required to obtain circle-wise licences from DoT for providing some telecom services i.e., for providing local call services, Whereas, for services like national long distance (NLD) services or STD and international long distance (ILD) services or ISD, licences are obtained on a pan-India basis.

 Circle-wise licences are not aligned with the geographical boundaries of states and one circle may cover multiple states.

Let's understand it with this example, the Delhi NCR circle covers the local areas served by Delhi, Ghaziabad, Faridabad, Noida and Gurgaon telephone exchanges, i.e., covers Delhi and parts of Haryana and Uttar Pradesh.

Currently, telcos maintain circle-wise accounting to account for circle-wise revenue for the payment of licence fee. Whereas, under the GST regime, the accounting would be required to be maintained state-wise i.e separately for Delhi, Haryana and Uttar Pradesh.

Further, there exist various disparities between telecom regulations (governed by Trai) and GST provisions.

For instance, in the case of roaming recharges for prepaid mobile telecommunication services, a subscriber of one circle (i.e. home circle say Delhi) buys recharge in the roaming circle say Haryana.

 As per place of supply provisions under the model GST law, the place of supply would be the roaming circle.

Whereas as per current regulatory requirement, such charges are required to be accounted in the home circle. Also, as mentioned earlier, certain circles comprise of multiple states (like Delhi NCR) and also certain cities of the same state fall under different circles (like Mumbai and Maharashtra and Goa).

In such scenarios, certain intra-circle supplies as per regulatory requirement would be considered as inter-state supplies under GST and vice-versa.

These disparities between telecom regulations and GST provisions would lead to complexities in accounting and these complexities would further increase if GST rates across states vary.

So, due to variance in regulatory requirements and GST provisions including non-alignment of circle areas, undertaking compliance and reconciliation would be a massive and complex task for telcos.

The above-mentioned issues and complexities would necessitate telcos to make massive technological changes in the IT and accounting systems to maintain state-wise accounting.

Issues in prepayment recharge services.

As per section -9 of model GST law place of supply of services (also known as the place of provision of services in service tax ) , payment is made through recharge vouchers or e-top ups (other than e-payment), place of supply is the location where prepayment is received or recharge vouchers are sold.

 Prepaid vouchers, etc, are sold by telcos through a distribution channel consisting of a large number of distributors and retailers such as a local recharge shop near the end of your street.

Given the distribution chain involved in the sale of recharge vouchers, the location where prepayment is received for recharge vouchers could be different from the location where such recharge voucher is sold.

For simplicity let's assume, 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 is not clear how to determine the place of supply as prepayment is received in Delhi, but the voucher is sold to a distributor in Noida. Accordingly, this could result in ambiguity with regard to the value of supply and tax liability for the distribution chain.

In view of the above complexities in the determination of the place of supply of telecom services, it is recommended that the place of supply should be aligned to the general rule, i.e., the address of the service recipient as per records of the service provider.

 Having said that, the place of supply being the service recipient’s address would burden telcos to keeping their database updated on a real-time basis.