After the implementation of the goods and services tax (GST) from July 1, many services can be expensive. Just a few days before the GST was implemented, hotels, credit card companies, banks and insurance companies have started to alert the customers.
Over the last few days, banks are reporting to their customers that the burden of tax on the credit card bill is going to increase from July 1. This will increase from 15% to 18%. Similarly, telecom companies have also said that the burden on mobile bills will increase as input tax credit is not very helpful. Its only one exception is Bharat Sanchar Nigam Limited (BSNL).
Government has also become cautious about this. The Department of Revenue of the Finance Ministry has stressed on all the ministries that they should prepare the industry to abstain from input tax credits to prevent the increase of tax burden. This tax credit in GST will be applicable to the tax paid for the AC and furniture used in the service providers’ offices.
Referring to the financial crisis in the telecom sector, companies like Idea and Airtel had appealed to the government’s inter-ministerial group that the telecom sector should be kept within the purview of the required service, and instead of 18% GST, it would be 5 or 12% GST to be imposed. Last month when tax rates were fixed on all goods and services, the government had said that the overall tax burden will not increase as companies will have an input credit dependable.
Insurance companies also told policy makers that the burden of taxation would also make insurance premium expensive. The highest impact will be on full term insurance plans where the levy will increase from 15% to 18%. For example, if you fill 25,000 rupees per year for a term plan of Rs. 1 crore, then it will be burdened with tax of 4500 rupees from GST which now costs Rs. 3,750. If your premium is 10,000 rupees annually and you currently pay a service tax of Rs 75 then you will have to pay 90 rupees after the GST is implemented.
Five Star Hotel is also alerting the mail to its customers. Hotels are telling their customers that after the tax burden the service will be expensive. However, the government had said that the amount of service and state taxes that are currently present, GST will be equal to the total.
In the logic of the companies providing service, the government is still not able to see it. “They should pass the input tax credit to the customers so that prices are not increased. We will request the ministries to take note of this so that customers cannot be robbed of more profits.