Smartphones could about to get even more expensive in India; here’s why

Written by Anuj Bhatia
| New Delhi |

Updated: March 16, 2020 12:01:53 am

The India Cellular and Electronics Association (ICEA), the industry body representing top smartphone brands including Apple and Xiaomi, has written to Union finance minister Nirmala Sitharaman “to retain GST on mobile phones at 12 per cent” after reports that the Goods and Services Tax (GST) Council is expected to hike the rate on mobile phones to 18 per cent from the current 12 per cent. The final decision will likely be taken at the next GST Council meeting on March 14.

In a letter dated March 12, as seen by, Pankaj Mohindroo, President, India Cellular and Electronics Association said: “The industry body is in extremely deep stress because of a serious disruption in supply chain due to Coronavirus… This is the most inappropriate time even to consider any sort of hike in the GST rate on mobile phones.”

At the moment, the current GST rate on mobile phones is 12 per cent, while batteries and mobile components fall under the 18 per cent tax rate slab. This causes an inverted tax structure, meaning the tax rates are higher on inputs than on furnished products. The GST council is expected to correct the inverted duty structure at a meeting on Saturday.

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An increase in GST rates could put pressure not just on consumers but the entire chain, including handset makers, retailers or anyone associated with the smartphone industry.

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The industry body argues that the mobile industry has performed exceedingly well under the ‘Make in India’ plan and hence even a small change in the GST could impact domestic manufacturing. Right now, almost all the phones made by Chinese smartphone manufacturers are made in India. Xiaomi claims that 99 per cent of its phones sold in India are made in the country. Apple too manufactures some of its iPhones, including the iPhone 7 and iPhone XR, in India.

“Smartphone companies are not in a position to absorb added cost,” said Navkendar Singh, Research Director, Client Devices & IPDS, at IDC India. “We were actually thinking that they would decrease it to 5 per cent to enable manufacturers to pass it onto the consumer and then drop the prices on the phone,” he explained.

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Singh said if the government decides to increase GST on mobile phones from 12 per cent to 18 per cent, smartphone vendors may need to increase smartphone prices significantly. The analyst said this move could cripple the Indian smartphone market, which is seen as the only bright spot for major tech companies in the midst of hard times.

A senior executive of a renowned retail chain said an increase of 6 per cent GST on mobile phones will badly impact consumer sentiment. “A person trying to buy a phone will still buy but it will affect the mood of consumers,” he said, adding: “The motive is not understood. Because when they brought it from the VAT regime to the GST regime, there was a clear hike in tax.”

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“The components may come from China or any other part of the world, but the phone is made in India. If you make in India, I will ensure the taxes are lower,” he said.

“Coronavirus is a temporary thing, but when you try to raise the GST to 18 per cent it is almost a permanent move from the government. Brands are not in a position to absorb cost, they have to pass on extra cost to consumers,” Singh said.

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