The GST Council in its 39th meeting has increased GST rates for several products including mobile phones. The council has increased GST rate on Mobile Phones and specified parts from 12% to 18%, which will increase the rate of mobile phones in the country. This move is to correct the inverted duty structure, said the GST Council.
Regarding this move, Xiaomi India Head, Manu Kumar Jain said that the GST increase for phones will crumble the industry. He added that the smartphone industry is already struggling with profitability due to depreciating INR vs US$ & supply chain disruption due to Covid-19 and said that that everyone will be forced to increase prices, which will further weaken mobile industry’s Make In India program. He has requested the Prime Minister and the Finance minster to at least exempt mobiles under $200 (=₹15,000) from this.
The industry is already struggling with depreciating INR & supply chain disruption due to Covid-19.
At least all devices under $200 (=₹15,000) must be exempted from this. https://t.co/hOMpSpTyKk
— Manu Kumar Jain (@manukumarjain) March 14, 2020
Pankaj Mohindroo, Chairman, Indian Cellular and Electronics Association (ICEA), said:
The GST raise will place an additional burden of Rs 15,000 crore on the common man and adversely impact over 100 crore Indian consumers. When coronavirus is spreading panic, the economic slowdown is at its peak, consumer sentiment is battered and stock markets are in free-fall, increasing GST is both counter-intuitive and insensitive. This will lead to immediate job losses and severely dampen future investments in manufacturing.
The GST hike is contrary to the Prime Minister’s vision to make India the world leader in mobile phone manufacturing. Further, reaching $80 billion (Rs 6 lakh crore) domestic production of mobile phones, as per the National Policy on Electronics 2019, will be impossible to achieve.
Dinesh Sharma, Mobile Business Head, ASUS India, said:
Smartphones are a key necessity and a very low margin, high volume, highly competitive business. The incidence of tax will directly have to be passed on to consumers. Higher taxes, coupled with rupee depreciation and higher input costs due to the impact of COVID-19, will lead to a significant escalation in prices and will affect demand negatively. Higher taxes on mobile phones and smartphones in the past have also resulted in higher incidences of duty evasion by unethical market participants, and have led to legitimate revenue loss for the government. It also increases the chances of export of stocks meant for local markets due to higher import duty credit available to traders. This again results in revenue loss for the government due to GST redemption provided to the exporters.
12% GST was very close to the earlier average VAT on smartphones and mobile phones. Hence, it was a price neutral transition to GST. With 18% GST, the tax on mobiles / smartphones is now a higher historical tax that will have the above highlighted negative implications.