GST rate on mobile phones should not be enhanced: ICEA

Telangana: India Cellular & Electronics Association (ICEA) has recommended to Telangana Chief Minister,  KS. Chandrashekar Raorequesting the state Government not to consider any such proposal relating to the raising of GST rate on mobile phones. For reference, there is a proposal to raise the GST rate on mobile phones from the existing rate of 12% to 18%.

ICEA has represented that this would have a wide-ranging and adverse impact on the penetration of mobile phones impacting the multiple service offerings and core programs of the government under the Digital India platform. Not only the 12% GST rate on handsets should be retained, but also the inverted duty structure which has crept in should be reversed by putting GST on all components and accessories of mobile phones at not more than 12%.

  •  Direct relief for 50% of Indian consumers in the marginalized and weaker sections’ bracket without any significant revenue impact 
  • In effect, the measure can support the Government’s larger objectives envisaged under “Digital India” through increased penetration of handsets due to increased affordability factor.

We would like to submit the summary of this issue along with appropriate recommendations which are as given below –

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  • The mobile phone has emerged to be the Champion sector under the flagship “Make in India” program of the Government. In fact, this has been one of the few sectors which have excelled during the past 4-5 years both in terms of manufacturing/ production output as well as substantial market demand for smartphones which has been growing at an appreciable rate year on year.
  • While the market demand for mobile handsets stood at Rs 57,000 crores in 2013-14 it grew to Rs 180,000 in 2018-19, a growth of 315%. Similarly, on the domestic production side, the mobile handset manufacturing which was at 18900 crores level in 2014-15 grew to 181000 crores in 2018-19 with a 315 % growth
  • Entry-level mobile handsets which are also popularly known as “Feature phones with push-button capability” still occupy approx. 50% of the total domestic market demand in India by volume translated to 120 – 150 million units in 2018-19.

However, despite having a market share of 40% by volume the value share of this category of handsets remains to be approx. INR 12,000 – 15,000 crores which are approx. 6.5% – 8% share of the total domestic market size by value. Therefore any increase in GST on mobiles would be like penalizing one of the few performing sectors.

Mr. Pankaj Mohindroo, Chairman, ICEA says, “Any increase on GST will adversely impact the nation’s plans to achieve NPE 2019 targets: As you would know, that as per the new National Policy on Electronics (NPE), 2019 the domestic consumption of mobile handsets target has been assigned at USD 80 Billion in 2025-26. This is despite the fact that in 2018-19 the domestic market demand for Mobile handsets was estimated at USD 25 Billion.

Therefore, in order to achieve the USD 80 Billion market demand, the country needs faster penetration of mobile phones much beyond the conventional growth estimates. Therefore, any decision to enhance the GST rate on this Champion product can prove to be disastrous.  Further, this may be noteworthy here to mention that during the pre-GST era under the VAT era the VAT rate applicable on mobile phones in most of the VAT jurisdictions were within the bracket of 4-5%”.

Further added, “The recent media reports discuss the GST slab of 12% to be eliminated. And this leads to speculation that the GST on Mobile Phones will be increased from 12% to 18%. More than 31 crores of people will be purchasing mobile phones in 2020. Increasing the GST on mobile phones in 2020 will affect the purchasing ability of these people.

As it is, in the majority of the states, consumers resent the GST rate of 12% because they were charged the VAT rate of 4%-5% till June 2017.  In the state of Telangana, a total of 97.5 lakh people will be affected. This will have an adverse impact on the people of the region. Hence, the proposal for the increase in GST on mobile phones should be repudiated.”

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