The Hindu Business Line : Handset vendors protest move to hike VAT on mobiles

With the proposed hike of 8.5 per cent, the Maharashtra Government expects its VAT revenues to increase to Rs 36 crore a month from the current monthly revenues of Rs 12 crore a month.

Our Bureau

New Delhi, July 2

The country’s handset manufacturers said that the Maharashtra Government’s decision to increase VAT on mobile handsets from 4 to 12.5 per cent will give a boost to the grey market and is a self defeating move.

“The move by the Maharashtra Government to hike the VAT on mobile cellular handsets from 4 to 12.5 per cent, is not just very distressing for the industry, but is also a very short-sighted move.

The mobile industry is a fast growing segment, which also contributes significantly to the GDP of the nation. This is a self defeating move, bound to reverse the growth, thereby, impacting the socio-economic development of the State as well,” said Mr Vipul Sabharwal, Director Sales, Nokia India.

According to industry estimates, the sales of mobile handsets in Maharashtra currently stands at a million units a month today, which translates into a turnover of Rs 300 crore a month, at an average selling price of $60.

With the proposed hike of 8.5 per cent, the Maharashtra Government expects its VAT revenues to increase to Rs 36 crore a month from the current monthly revenues of Rs 12 crore a month.

Sales may drop

However, the telecom industry believes that an 8.5 per cent hike, or a total VAT of 12.5 per cent will lead to a massive drop in legal sales, with sales falling to Rs 30 crore a month from the current Rs 300 crore.

This means that the VAT revenue collections will, in turn, fall to around Rs 4 crore a month, thus leading to a loss of Rs 8-10 crore a month or approximately Rs 100 crore annually to the State Government exchequer.

Additionally, revenue from Octroi, which currently stands at Rs 9 crore, is expected to be negligent on a monthly sales turnover of Rs 30 crore.

This is because such a regressive move will lead to a resurgence of the grey market, with handsets coming in from both neighbouring states as well as from international markets such as Singapore and Dubai.

This will in turn affect business on the organised trade as well, impacting employment and encouraging unethical practices – all in all, a completely unfortunate and lose-lose situation for all stakeholders involved starting with consumers.

More Stories on : Telecommunications | Taxation | Maharashtra

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