How Does Taxation Affect an Essential Service Like the Internet?

  • December 12, 2023
  • Registrationwala
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In the world, Israel is the country that offers the cheapest mobile data and the Saint Helena (a British Overseas territory in the South Atlantic Ocean) offers the costliest data to the users. As per the report of Statista, India is in the 3rd number in terms of lowest internet data rates. 

 

Some of the best players in the market are JioFiber, and BSNL Bharat Fiber covering almost all circles of India. Other than these, there are regional providers like Excitel, Tata Sky broadband, You broadband and Hathway. These ISPs provide internet service to consumers in affordable packages and multiple factors affect the cost of internet in India. 

Direct Impact of GST on the Internet

The internet has changed the way we access information. To access the internet, its affordability is important and tax has a crucial role in determining cost efficiency. Below are some factors that affect the internet service directly.

  • GST: The GST rate on internet services is 18% which is higher than the previous GST rates. This results in higher prices for consumers which will lower the transferability of the internet in low-income households and rural populations.
  • Spectrum Fees: The cost of acquiring a spectrum license or telecom license is high. So, it impacts the mobile internet service providers leading to higher data tariffs for consumers.
  • Corporate Taxes: The corporate tax does not impact the consumers directly but it affects the overall operational cost of the company. The tax paid by the ISPs eventually increases the price of internet services as per the strategy.

Indirect Impact of GST on the Internet

As per the Supreme Court decision, the entry fees paid by the telecom companies will be considered as a capital expenditure and not revenue expenditure and it will be taxed accordingly. This decision of the Supreme Court will increase the tax liability of the telecom companies. Below are some reasons that indirectly impact services such as the Internet.

  • Import Duties: For ISPs, the cost of equipment and infrastructure that is required for network expansion. Also, increases the overall cost of Internet Service Providers leading to higher Internet prices in the long run.
  • Leasing and Land Taxes: If the ISP takes the infrastructure and land on a lease. Then it also contributes to the increase of operational expenses and impacts internet affordability.

GST on Telecom Services

  1. The telecom services attract taxes of 14% along with Swachh Bharat Cess (SBC) of 0.5% and Krishi Kalyan Cess (KKC) of 0.5%. The service tax is a pure value-added tax. This is for the reason that while no Input Tax Credit of SBC is available, the ITC of KKC is allowed to be set off only against KKC. These both cesses are turnover tax.
  2. The telecom services have a GST of 18% in the GST regime. This is a pure value-added tax because full ITC of inputs and input services used in the course.
  3. Telecom service providers are neither eligible for credit of VAT paid on goods nor for special additional duty (SAD) paid on imported goods/equipment. However, under GST, telecom service providers can avail of credit of IGST paid on domestically procured goods as well as imported goods.
  4. The ITC of service tax paid on an assignment of spectrum by the Government in 2016 is presently available by the telcos for 3 years. In the GST regime, the entire credit can be taken in the same year. The balance of two-thirds credit of the previous year will be admissible in the current financial year itself. All of these would reduce the telcos' liability to pay GST through cash to about 87% of what they paid in the last fiscal.
  5. The telcos are required to re-work their costing and credit availability and re-jig their prices. Also, ensure that the increased availability of credits is passed on to the customers by lowering their costs.

Conclusion

To conclude, the Indian government has taken some steps to address the challenges. Through several initiatives such as BharatNet to improve rural connectivity. This is the biggest rural telecom project in the world that is implemented in all Gram Panchayats in the country. It provides broadband connectivity to all the telecom service providers.


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