TELECOM & FINANCIAL SERVICES

Phone bills,
insurance
and banking
to cost more
ARUP ROYCHOUDHURY & KIRAN RATHEE
New Delhi, 19 May

Availing insurance, banking services, investing in

mutual funds and paying mobile bills will get costlier
with the GST Council setting a rate of 18 per cent for tele-
com and financial services. But, while telephone bills
will surely rise, analysts are divided over to what extent
financial services companies will pass on the increased
tax rate to clients.
The existing service tax rate, including for telecom
and financial services, is 15 per cent, including Swachh
Bharat cess and Krishi Kalyan cess.
Industry body Cellular Operators Association of
India (COAI) feels an 18 per cent rate under the nation-
wide goods and service tax regime will further stress the
already bleeding sector.
We are disappointed with announced rate of 18 per
cent. We had submitted to the government that con-
sideration must be given to the present financial con-
dition of the sector and any rate beyond the existing rate
of 15 per cent makes the telecom services more expen-
sive for the consumer. It will augment the existing bur-
den of the industry further, COAI Director General
Rajan S Mathews said.

He said the telecom sector pays around 30 per of its

earnings in taxes and levies and due to a number of rea-
sons, including hyper competitiveness, the sector has
come to a point seen just short of needing a bailout. As
an essential service, the telecom industry needs some
benefits and tax relaxation in order to provide a seam-
less and hassle-free service, Mathews said.
Imposing 18 per cent tax on telecom is likely to
increase the overall tax burden and therefore may have
a negative impact on the consumers expenses. It needs
to be appreciated that telecom is a necessity and an
extremely important infrastructure service & resource
and thus deserves more sensitive treatment, said Uday
Pimprikar, tax partner, EY India.
On financial services, the 18 per cent rate will not
apply to all the services provided by banks, insurance
companies, mutual funds and capital market brokers,
said M S Mani, senior partner, Deloitte Haskins and Sells.
Only fee-based services provided by banks, like
issuing of cheque books and cards, will attract GST.
That would hardly be 10 per cent of a banks top line,
Mani said. He said for insurance and mutual funds, the
savings component will not attract GST, only the risk
premiums will. For brokers helping in trades and banks
participating in offloading of shares in the stock markets,
GST will apply to the commission and fees they charge.
Banks and insurance companies will get GST cred-
its, especially for business-to-business transactions.
Hence, overall GST may not be detrimental to their
businesses, Mani said, adding that the additional serv-
ice tax may only be passed to large business clients
and not ordinary people availing such services.
Other analysts disagreed. Life Insurance could have
been considered as one of the sectors with a benign GST
rate given the demographic situation in India and
below-average penetration of life insurance services,
said Divyesh Lapsiwala, indirect tax partner, EY India.
The GST rate for insurance, clubbed with financial
services has been announced at 18 per cent. This will
increase the incidence of tax for customers from the
existing 15 per cent to 18 per cent. Having said this, the
industry has also been seeking removal of exemption,
for which we await the details in terms of announce-
ment of the exemption list," said Gopal Balachandran,
Chief Financial Officer at ICICI Lombard.