Budget 2012: Mobile talk gets taxed a little more

More than 900 million mobile phone users in India should get ready to pay more for their monthly mobile phone bills on the back of a 2% hike in service tax announced in the annual budget on Friday. The service tax across the board will go up from an existing 10% to 12% affecting both pre-paid and post-paid subscribers.

So if you were paying Rs 1,000 as your monthly post-paid bill you will need to shell out another Rs 20 while if you are a pre-paid customer your talk time is likely to reduce as the service tax is priced in the voucher. So if you bought a Rs 100 voucher and got Rs 88 worth of talk-time with Rs 10 going as service tax and Rs 2 as processing fee now you will get Rs 86 of talk-time.

This move, operators said, will make it difficult for them to plan any tariff hikes considering the hyper-competitive nature of the industry.

"This will have an impact on the consumers and the industry at large. At the end of the day consumers have a fixed monthly budget and this hike along with the others will make it difficult for them. If operators don't pass through the entire tax hike we will have to tinker with our tariff structure," said Himanshu Kapania, MD, Idea Cellular.

It's not only the GSM players like Idea, Vodafone and Airtel which are a worried lot. Even CDMA operators expressed concern on the service tax hike considering their subscriber base is largely at the bottom of pyramid. "From a global perspective, the telecom industry in India continues to attract the highest tax rate of 23%. It would have been good, if this could have been rationalized as the telecom industry continues to face numerous challenges," said Vsevolod Rozanov, president & CEO MTS India.

Analysts tracking the sector said that the 2% hike in service tax may not completely deter operators from going ahead with tariff increases later. " Operators have been talking about 20-30% increases so this 2% hike should not stop them from taking up call rates in the future," said Ashish Basil, partner, telecom practice, Ernst & Young, a consultancy firm.

The one silver lining in the budget for consumers was the announcement of exemption of basic customs duty on mobile phone parts. This could help boost local manufacturing of mobile handset makers and prices may come down while even as imported handsets may get costlier.