GST increase on mobile phones from 12% to 18% to make them costlier; ICEA says this is a bad move

Mobile phones are going to get costlier with the latest revision on GST. It has been hiked to 18% from 12%. Finance Minister Nirmala Sitharaman had made this announcement the 39th GST Council meeting held on Saturday in New Delhi.

So, mobile phones are all set to get expensive after the centre's decision to hike the Good and Services Tax (GST) on cellular handsets to 18% from the current 12%.

India’s leading mobile industry association, ICEA in response to this revision in GST has expressed shock and disappointment.

The press statement released by the association says, "The main criticism is over the timing and the resultant increase in prices. Unless the proposed GST hike is reversed, it will place an additional burden of INR 15,000 crore on the common man, adversely impact over 100 crore Indian consumers. When Coronavirus is spreading panic, 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."

ICEA believes that consumers would bear the worst brunt of this increase. It sends a wrong message to the consumers at the time when they need the government’s hand holding the most. Till June 2017, most consumers were paying a VAT of 4-5% and 1% excise duty on mobile phones.

"The 12% GST on mobile phones in place of VAT was already a massive hike in taxes at a time when GST was aimed at reducing the tax on consumers. With 18% GST, the extremely price-sensitive Indian consumer will either delay their purchase or buy in the grey market. The 18% GST hike will also bring back the bad old days of the early 2000s when the grey market in mobile phones was rampant at 90%. It reverses years of painstaking efforts by governments and industry to increase mobile manufacturing and penetration by sensible policy interventions and tax rationalization," reads the statement.

"This move will also prove to be disastrous for the already fragile retailer community wherein lakhs of small and mid-sized retailers survive by selling mobile phones. Retailers are already suffering due to the economic slowdown. They will now come under further pressure. Thousands of retailers have already shut shop over the last two years and thousands more will face closure due to the proposed GST hike," said the statement.

ICEA points to the fact that the GST hike is contrary to the Prime Minister’s vision to make India the world leader in mobile phone manufacturing. Further, reaching USD 80 billion domestic productions of mobile phones, as per the National Policy on Electronics 2019 will be impossible to achieve. In fact, reaching half that figure will become a struggle. It will also adversely impact the wider mobile manufacturing ecosystem, which has been one of the few success stories of India’s “Make in India” flagship program.

A GST hike at this stage undoes several good policy measures underway to boost mobile manufacturing, domestic sales, and exports from India. Mobile manufacturing had shown excellent results where the industry had increased production 5X and revenues 10X from 58 million units valued at INR 18,900 crore in 2014-15 to 290 million units valued at INR 1,81,200 crore in 2018-19. The govt. revenues post GST had doubled from INR 10, 900 crores to INR 20,700 crores within two years. To strike the sector with a higher GST at this stage is the equivalent of killing the goose that lays the golden egg. Not a savvy move by any stretch.

ICEA opines that the rationale for correcting the inverted duty structure by increasing GST is misplaced. The need of the hour is to reduce GST on components, rather than hiking the tax on mobile phones. We look forward to persuading the GST council to review their decision in light of new facts that may have escaped their attention.