As feared by the smartphone sector in India, the Goods and Services Tax (GST) Council has announced a hike in the rate of tax on mobile phones from 12 to 18 per cent. The announcement was made by Union Finance Minister Nirmala Sitharaman after she chaired the 39th meeting of state and Union Territory finance ministers as well as senior officials in New Delhi.
— ANI (@ANI) March 14, 2020
If smartphone makers decide to pass this on to consumers, then prices of smartphones will rise across all price points from April 1. Till now the GST rate on mobile phones was 12 per cent while batteries and other components were taxed at 18 per cent, causing an inverted tax structure. The GST council has set to correct this.
Pankaj Mohindroo, Chairman of the India Cellular Association, said the move to increase of GST by 6 per cent will be “extremely detrimental to the vision of Digital India”. In a statement, he said: “Consumption will be stymied and our domestic consumption target of $80 billion (Rs 6 lakh crores) by 2025 will not be achieved. We will fall short by at least Rs 2 lakh crore. This was time for statesmanship especially when the country is going through a crisis and as a nation, we have fallen short.”
Meanwhile, Xiaomi India MD Manu Kumar Jain said the move will “crumble the industry”. Xiaomi is India’s largest smartphone vendor and manufacturers most of its units locally.
“Smartphone industry is already struggling with profitability due to depreciating INR vs US$,” Jain tweeted. In another tweet he urged the FM and Prime Minister Narendra Modi to reconsider the hike. “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. Everyone will be forced to increase prices. This will further weaken mobile industry’s #MakeInIndia program.” Most of Xiaomi’s popular models are priced under Rs 15,000.
The Indian Cellular Association, which represents the top smartphone brands, had earlier written to Union finance minister Nirmala Sitharaman asking for the rate to be retained at 12 per cent. In the letter, Mohindroo had said the “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.”
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