Telecom to banking, most services to be costlier with GST

NEW DELHI: For some days now, several service providers — from insurance and banking to telecom and hotels — have been sending emailers to customers warning of a GST-driven increase in prices starting July 1.

Alarmed and unconvinced, the revenue department in the finance ministry has roped in other ministries to impress upon industry to adjust input tax credit against possible increase in tax liability. The tax credit being referred to will be on taxes paid on the purchase of ACs and furniture used in the service providers' offices.

In the fast few days, banks have informed consumers that the tax burden on credit card bills will increase from 15% to 18% from July. Similarly, telecom companies have said that monthly bills will rise as the gains from input tax credit will not be be significant. The only exception is state-owned Bharat Sanchar Nigam Ltd.

"Tariff will not be changed in the GST era. They will be maintained. They should remain at the same level," the loss-making company's chairman Anupam Shrivastava told TOI.

In fact, citing financial stress in the sector, companies such as Idea and Airtel have pitched before an inter-ministerial group that telecom should be treated as an essential service and face a lower GST of 5% or 12%, instead of the current 18%. When the rates were decided last month, the government had said that the overall burden will not rise given that input credit will be available to companies. It had pointed to the telecom sector to argue that cost will reduce by 3%.

Insurance companies+ too have told policyholders that tax burden will push up the premium, with the maximum impact will be on pure term insurance plans, where the levy will rise from 15% to 18%. So, if your annual premium for a Rs 1 crore term plan works out to Rs 25,000, GST will result in a tax burden of Rs 4,500, compared to Rs 3,750 currently. the impact will be lower for Ulips, where insurers charge a fund management fee and mortality charges. If your premium is, say, Rs 10,000 a year you currently pay Rs 75 as service tax, and GST will push up this liability to Rs 90.

"Term insurance will bear a higher burden when as a country we need greater insurance penetration in the pure term insurance segment. World-over such products are exempted from tax or it is limited to the commission and reinsurance fee," said Neetu Gupta, vice-president for taxation at Aviva Life.Even five-star hotels have sent out mails to customers, some of them to those have not stayed with them for years, announcing higher tax burden, although the government had said that the overall incidence was near existing levels, which includes service and state taxes.

The government is still not convinced with the argument being put forward by service providers. "They should pass on the benefits of input tax credit to consumers, which will reflect in lower cost. We will request ministries to take up the matter with the service providers so that consumers are not robbed of any benefit," said an officer.Revenue secretary Hasmukh Adhia has already got the housing ministry to shoot off letters to state governments, asking them to ensure that builders do not push up prices of under-construction houses or prompt buyers to get advance payments.