The Hindu Business Line : Cellular Association seeks sales tax cut on mobile sets

THE Indian Cellular Association (ICA), representing manufacturers, distributors and retailers of mobile handsets, has made a plea to the State Government to bring down the sales tax on handsets to 4 per cent, treating it as an IT product.

According to Mr Pankaj Mohindroo, President, ICA, most of the state governments in the country have brought down the sales tax to 4 per cent, thereby checking the growth of the grey market and ensuring higher revenue to the governments.

It has been pointed out that the grey market is rampant in Kerala unlike other parts of the country where it has substantially fallen from as high as 95 per cent to just over 50 per cent as a consequence of the rationalising the sales tax. The thriving grey market in the State has seen to it that the revenue to the Government remained at a low level.

ICA has projected that the mobile handset market in the State will go up from 4.25 lakh in 2003 to 1.25 million in 2007. Of this, the legitimate market accounts for only 29,750 handsets in 2003 and this will move up to just 1.25 lakh pieces at the current rate of 13.8 per cent tax in 2007.

On the other hand, the association has estimated that the share of the legitimate market will go up to 70 per cent or 8.75 lakh pieces in 2007 if the tax is rationalised to 4 per cent.

More importantly, the State Government will cumulatively lose Rs 221.4 crore during the period 2003-07 at the current tax rate, whereas it stands to register a revenue increase of101 per cent from Rs 23.7 crore to Rs 47.6 crore during the period at the revised rate. In 2004 alone, the sales tax is estimated to increase by 88 per cent, from Rs 3.77 crore to Rs 7.10 crore.

The association has also sought inclusion of cellular phones in the draft value-added tax schedule and tax them at the IT floor rate of 4 per cent.

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