‘Telcos passing down GST as expected’

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KUCHING: With all the furor over whether telecommunication service providers should or should not pass down the Goods and Services Tax (GST) to customers, channel checks confirmed that GST is applied on prepaid reloads at all the four major wireless telcos.

It is noted that prepaid users pay an incremental amount for GST above their reload values.

For prepaid starter packs however, Maxis and Celcom have chosen to absorb the GST, meaning prepaid users are status quo before and after GST implementation. For Digi and UMobile, prepaid users now incur an additional six per cent GST for the purchase of starter packs.

An analyst from AllianceDBS Research Sdn Bhd (AllianceDBS Research) affirmed that this will have a positive impact on the mobile operators given that they had been absorbing the old six per cent service tax on behalf of their prepaid subscribers in the past.

“There are two comforting points in this. First, a change in pricing structure to price plus GST (as opposed to GST-inclusive pricing) is preferable as this would minimise potential negative impacts to earnings for mobile operators if the GST rate is hiked in the future,” it explained in a note yesterday.

“Second, as all the mobile operators are passing on the GST, this alleviates previous concerns that some players might want to be aggressive to gain market share by continuing to absorb the tax instead.

AllianceDBS Research had conservatively assumed a three per cent effective increase in prepaid revenue for the mobile players as it believed usage might be slightly impacted due to price inflation in the economy.

“This had previously led to an earnings upgrade of about two to five per cent for the mobile players in FY15 to FY16F.”

The analyst pegged DiGi.com Bhd to benefit the most as it has the highest percentage of revenue generated from prepaid subscribers compared to peers.

In a separate report, Maybank Investment Bank Bhd (Maybank IB Research) the implementation of GST effectively allows wireless telcos a chance to pass on the tax they previously absorbed in the prepaid segment.

Thus, it should come as no surprise that consumers now bear the GST charge for reloads.

“The differing GST treatment on prepaid starter packs by telcos serves to emphasise our point that the benefits of GST are not as clear-cut as simply a direct flow-through of the previously foregone revenue down to EBITDA (earnings before interest, tax, depreciation and amortisation),” it said.

“There are elasticity considerations, and competition remains intense, meaning part of the newfound revenue could be returned back to customers in the form of lower effective tariffs. It remains to be seen how price points would eventually trend in the coming months.

“We have assumed operators enjoy the equivalent of a three per cent passthrough in service taxes in our earnings forecasts.”