Taxes on consumer use of mobile service will rise 20 percent in India as the government introduces a new tax plan. At present, mobile service is taxed at 15 percent, but a hike to 18 percent is expected,
“Since telecoms is an essential service under Essential Services Maintenance Act, 1968, it was imperative that the GST rate should have been aligned with the merit rate of tax applicable for essential products and services, which is way below 15 percent,” said Rajan Mathews, director-general of the Cellular Operators Association of India.
In effect, argues Matthews, the government will increase the cost of mobile service directly, and in proportion to the actual increase, as the new taxes will simply be passed along to customers. Economists call that tax “incidence,” or the actual burden of paying any particular tax. Irrespective of who “collects” the tax, it is the customer who pays the tax, as it is a “cost of doing business” for the mobile operator. In principle, and in fact, all “costs” within the internet access ecosystem are paid for either by customers who buy services , subscriptions and devices; by advertisers who underwrite costs on user behalf; or by merchants who likewise subsidize the cost of transactions (free shipping and other inducements to buy merchandise).
Since every increase in the cost of some desired good depresses actual demand, if the tax on mobile service is increased, there will be less buying of internet-related or mobile-related products (access, devices, services). The only issue is where the reductions will happen.