GST Impact on Mobiles
Hate it or like it, but the bottom-line is, you just can’t ignore GST. As Goods and Services Tax has now officially launched in India, it would not be wrong to say that this indirect tax regime is going to affect Roti, Kapda Aur Makaan, thus leaving a lasting impression on common man’s monthly budget. But apart from these three basic necessities in life, GST is also going to affect your fourth most basic need. Well, it’s none other than your Mobile phone. Yes, that’s right! Under the new tax regime, most mobile phones may get costlier by 4%-5% with the government imposing the GST of 12%, taking away the benefit under duty differential. Thus, you can say that the mobile phone industry is set to witness a tectonic shift because GST will not only make locally manufactured phones expensive but the phone accessories will also be costlier as they currently operate under the lower tax rate due to the benefits provided under government’s ‘Make in India’ policy.
However, one thing that needs to be mentioned here is the fact that phones Made in India will be more expensive as they currently pay around 7.5%-8%. If we talk more about government’s Make in India push, reports suggest that Government is set to levy a customs duty of at least 10% on imported mobile phones as well as accessories under GST in order to safeguard the benefits passed on to the local manufacturing. However, you need to wait for an official announcement on the same but one thing is certain that this move would definitely encourage players to rather Make in India than elsewhere.
Latest GST News on Mobile Phones
In the 39th meeting of the GST council headed by the Finance Minister Nirmala Sitharaman on March 14, 2020, several decisions were announced. But one of the major decisions that will impact a lot of people is the increase in the GST rates on Mobile Phones and a few allied parts to a whopping 18% from the earlier GST rate of 12%. The change in rates will be effective from April 1, 2020.
This change in rates will certainly make the prices of phones higher than now as this rate shift is quite substantial. One of the Managing Directors (MD) of a top mobile brand said in his statement that the smartphone industry is already struggling with profitability due to the depreciating value of the Indian Rupee against the US Dollar. And this sudden shift will only deteriorate the conditions. Due to increased GST rates, every company will have no other option than to increase the prices of their phones which will further dent the Make in India program of the industry.
Also, due to the ongoing pandemic caused by the COVID-19, the Indian suppliers are finding it hard to maintain the proper supplies. The reason behind it is the shutdown of various Chinese manufacturers. While many factories have reopened in China but are not operating at a full-fledged level as some of their workers haven’t come back to work yet.
A Take on Indirect Tax System
If we go deep down into the subject, India has 36 VAT jurisdictions (29 States and 7 Union Territories) and out of that 29 have VAT rate on mobile phones of 5% along with 1% excise duty. As a result, the total incidence is 6% at present in many parts of the country. Talking about few states, Madhya Pradesh, Maharashtra and Gujrat may not witness the price drop even though they have VAT rates between 12.5% and 15%. Well, the reason being as they subsidize to avoid grey marketing. While on the other hand, States like Punjab, Chandigarh and Rajasthan that have rates of 8%-9%, the cost increase would be marginal there.
But the biggest news for all phone lover is that many smartphone brands such as Samsung, Xiaomi, Oppo, Gionee, Intex and Lava won’t increase their prices as these companies plan to absorb the impact on cost from the new tax system that comes into effect today midnight. If industry insiders are to be believed, retailers have already stopped purchasing the stocks from the brands. In fact, some distributors have closed their warehouses for a week, till time process for invoicing and reclaiming credit on duties paid on the stocks and other aspects are clarified by the brands.
GST Impact on Telecom Industry, Mobile Bills & Tablets
Talking about mobile phones, how can telecom industry remain untouched by the GST impact. That’s right! According to India’s new unified tax regime, post-paid subscribers, who are currently paying ₹1,000, would have to pay ₹30 extra every month with the rollout of the GST. For prepaid subscribers, the talk time can reduce compared to the pre-GST period. The government post GST will levy 18% tax as opposed to the earlier rate of 15% on telecom services. The move, according to many, would have a cascading effect and mount the worries for the already struggling telecom sector.
For example, if you are on a ₹100 pack, you are likely to get around ₹82.20 talk-time as against ₹83.96 previously for the same price. Furthermore, according to experts, GST is coming at a time when tariffs for data usage have fallen to an all-time low across the board where voice calls are now free for not just Reliance Jio subscribers but also for many postpaid subscribers of Vodafone India, Airtel and Idea Cellular.
When it comes to phone bills, they will see the escalation as the states would be in charge of the determination of Service Tax. If we talk about the current scenario, on a bill of ₹1,000 an individual needs to pay 15% tax which further rounds off to ₹1,150. But now after the implementation of GST, an individual needs to pay 18% tax, for the same amount of services used , thus making his/her final bill to ₹1,180. So, from July onward, get ready to pay more for internet usage, phone calls and call rates.
Talking more about the same, GST is being executed to make the taxation simpler and to create a level playing field for everyone. When it comes to consumer durables such as tablets, PCs and accessories are expected to fall under a lower tax slab of either 12% and 18%, considering they will have a huge role to play towards government’s vision of Digital India as well as Make in India.
To sum it up by considering the Digital India move, experts don’t expect GST to majorly impact the smartphone prices. However, as many OEMs import components from countries like China and assemble in India, it is to be expected that the government may encourage them to manufacture as well as assemble in India only, which will further help in making the components and smartphones even cheaper. While on the other hand, few consumer electronic products such as digital cameras and televisions may not benefit as they are more of luxury products, tablets, laptops and computer are expected to reap the benefits from GST.