CNBC-TV18's Menaka Doshi decodes the Goods and Services Tax (GST) for the Indian telecom sector with the help of Jigar Doshi, Partner – Indirect Taxation, SKP Business Consulting.

Below is the edited transcript of the interview to CNBC-TV18.

Menaka: What are the advantages of the GST for telecom?

Jigar: The benefits will be broken into three parts. First, the Central Value Added Tax (CENVAT) credit which is currently not available or is under litigation, specifically on the expenses on the tower or the infrastructure that the telecom industry is using, that credit should be available under the GST regime being a seamless tax regime.

The second point would be on the classification issue which is the classic issue under the current IDT regime wherein classification of any activity into a provision of service or a supply of good such as sale of SIM card should also be put to rest under the GST regime subject to the fact that the standard rate of goods and services are constant.

Third, major benefit that the industry will foresee is the taxes, the local taxes that they are paying on the diesel which is the primary input used by the tower. Currently they are not available to credit for the entire sector but once GST is applicable on petroleum sector, the said credit will be available.

Menaka: The question is will these advantages out way the negatives, for instance, a higher rate of tax if the standard rate is indeed fixed at 18 percent?

Jigar: The hike of the rate of taxes from 14.5 percent of service tax currently to 18-20 percent as reported by Chief Economic Advisor (CEA) would be a heavy burden on the consumers because ultimately on the bills that the consumers are paying, they would have to pay higher taxes.

The second major issue that we foresee is exemption which is currently being enjoyed by the distributors who are distributing the services of various telecom operators maybe bought under GST regime because GST is ultimately a no or a less exemption regime. In such a scenario the services which are provided by distributers will also be under the GST net ultimately leading to higher tax burden to the end consumers.

The third major issue is a place of supply rules specifically in the telecom sector this is a major issue because the services which are in the sector like roaming services which is consumed in various states at the same point of time and also interlinking services where towers are being used by the same operator between branches so which state is actually the consuming state and where the taxes will have to be accrued will be determined with the place of supply rules.

In a nutshell maybe I can say that if not appropriately worded and the law does not clarify on the specific under the place of supply rules the end consumers will be bearing huge taxes if credits are not passed appropriately by the sector.