GST: Impact on Smartphones

GST: Mobile Phones to Become More Expensive Until Government takes the Initiative to restore Local Manufacturing Shops by July 1

By a reliable source, it has been reported that there will be a gradual rise in prices of mobile phones by 4-5%. This is because the government is imposing a food and service tax (GST) of 12 percent, taking away the benefit under duty differential that is being offered to local manufacturers.

GST in india

Market researchers and experts have stated that government will have to come up with measures and incentives by July 1 to make sure that Make in India still remains to be flourishing and attractive proposition for contract manufacturers like Foxconn.

As per the report by ET from the IT and telecom secretary Aruna Sundararajan, “The GST rates are being considered as a positive indication for the industrial sector. The new GST rate will certainly pursue the basic customs duty case and the both these aspects will give an immense momentum to local electronics and manufacturing aspects”.

The further report revealed that either the existing regime will continue or the new regime with GST in addition to the customs duty will take over. We are trying to push 5% GST but the decision for 12% also highlights a good change.

The Make in India campaign was really a good push. The statistic report of the market by reliable firm Counterpoint Research states that around 80% phone in the market of 59 million sold in India during January to March we made locally as compared to the 65% in the year 2016. This is a proof of revolution that is leading to the evolution of the new Make In India Campaign.

With this evolution, some 40 odd phone manufacturing companies have laid their roots including 15 components making units including Wistron, Flex and Foxconn.

To keep the track of difference between the locally manufactured products and imported products, the governments wants to lay a basic customs duty on mobile phones as reported by senior governmental officials to the ET. The decision is not yet final, and the industrial sectors are looking for more clarity on the objective and duty differentials before the GST is expected to be implemented on 1 July.

Sundarrajan has also reported that the department is joining hands with the finance ministry on the timing when asked about the solutions to keep Make in Indian campaign going will be executed before implementation of GST.

According to the rates fixed by the GST council, it has been reported that Telephones for wireless network or cellular networks including parts for their manufacturing will attract a rate of 12 percent growth. This will make the imported mobile phones cheaper as compared to the locally manufactured phones.

Pankaj Mohindroo, the president of Indian Cellular Association that represent handsets makers like Apple, Micromax, Samsung and many others have reported that, “29 out of 36 VAT jurisdictions in India (including 29 states and 7 Union Territories) have VAT rate of mobile of 5% along with 1% exercise duty, leading to the total of 6% incidence in the major parts of the country.

GST at 12% will cause the gradual rise of 4-5% in most geographies, thus the 5% GST rate recommended by the IT and electronics ministry is the most appropriate rate.

States like Gujarat, Maharashtra and Madhya Pradesh may not see the price drops even though the VAT rates there being 12.5% and 15%, as the subsidised to avoid grey marketing, while the price may not rise in states like Chandigarh, Punjab and Rajasthan that have rates of 8% to 9%.

For the handsets imported and sold in India, duty was from 17% rising up to 27% which now comes down to 12%, giving imports a leg up. And those made states with lower VAT rates would be priced higher to match up to 12% GST.

For example, the iPhones being made out of Bengaluru and Peenya are now likely to be billed to customers at a higher rate.

So overall, the prices of the imported handsets are likely to go down, as compared to those manufactured locally. The locally made handsets will rise where they are being made from states with low VAT rates like Karnataka.

Bipin Sapra states that “the government will now have to find measures and incentives to keep the Make in India flourishing and attractive”.

Bipin Sapra also added that the prices of mobile phones at e-commerce stores like Amazon, Snapdeal, Flipkart, Shopclues and others will also rise up accordingly where the sellers have been supplying handsets from low VAT states, primarily Karnataka.

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