Higher excise duty may mean fewer smartphones sold

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Mobile phones above the price of Rs 2000 will attract higher duties annouounced in the Union Budget 2013-14.
Mobile phones above the price of Rs 2000 will attract higher duties annouounced in the Union Budget 2013-14.

Mobile phones priced above Rs 2,000 will get expensive. The Finance Ministry has increased the excise duty to 6 per cent from 1 per cent on these phones.

“About 70 per cent of imported mobile phones and about 60 per cent of domestically manufactured mobile phones are priced at Rs 2,000 or below. Mobile phones enjoy a concessional excise duty of 1 per cent, and I do not propose to change that in the case of low-priced mobile phones,” Finance Minister P. Chidambaram said while presenting the Budget. Handset-makers said that the increase in duty will be passed on to the consumer. Even domestic phone brands criticised the move saying it would slow down increase in smartphone users, thus cutting down on Internet use, especially in rural areas.

Hemant Joshi, Partner, Deloitte Haskins and Sells, said, “The smartphone prices would to go up 4 per cent due to change in the tax structure. Smartphones are very important tool for proliferation of data services and other VAS (value-added services). This proposal may be deterrent in increase in sales of low-cost smartphones.”

grey market

S.N. Rai, co-founder and Director, LAVA International Ltd, said the phone industry is already suffering from non-uniform value-added tax. “This step is a discouraging move to the domestic industry which is looking at making India a manufacturing base for mobile phones,” Rai said.

T.M. Ramakrishnan, CEO-Devices, S Mobility Ltd, said there might not be any decrease in demand for phones but pressure on margins would increase. Nokia India Vice-President and Managing Director P. Balaji said, “It is likely to increase sale of grey, unbranded sub-standard handsets which is not good for the consumer, industry and exchequer.”

(This article was published on February 28, 2013)
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