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Maharashtra Ups VAT On Mobiles, Others May FollowBy akansha, Section Maharashtra News
The Maharashtra government has taken the lead in hiking the value-added tax (VAT) on mobile cellular handsets from 4% to 12.5%, a move that could ignite similar action from other states.
This means that handsets will become more expensive across Maharashtra as handset makers say their margins are just 1% to 2%, leaving no room for price cuts. For the government, the revenue temptations are obvious. The department of telecommunications (DoT), in a first ever forecast of mobile penetration across India for the next 6 years, has projected a billion mobile phones by 2014. This probably reflects the world's largest new growth opportunity over the next 5 years, surpassing China's potential. China is already at nearly 700 million mobile phones as compared to India's 400 million. The fact that India will add more than 600 million new subscribers' - rates as the biggest subscriber additions for any country in the world. At an average price of $60 or Rs 3,000 per mobile handset, the additional revenue per handset works out to Rs 240 at a 12% VAT rate. At roughly 120 million handset sales a year, this translates to all-India revenues of roughly Rs 3,000 crore or Rs 15,000 crore over the next 5 years, should all states adopt the same VAT rate. For Maharashtra alone, this translates to higher value-added tax revenues of Rs 36 crore per month from the current Rs 12 crore per month. Source: Times Of India Maharashtra ups VAT on mobiles, others may follow Click On "Full Story" For More...
The revenue promise clearly tilted the balance for the Maharashtra government, which finally issued a notification in favor of a higher VAT on Tuesday.
This is after holding it in abeyance since 4 June when it was first announced in the state Budget following strong opposition from the industry. The Indian Cellular Association (ICA) is displeased. It says the move will only serve to push consumers towards the grey market while hitting employment in organized trade. According to Sunil Dutt, country head of Samsung's mobile business in India, the move will bring back the grey market from the current 10% level to 90% levels last seen in 2002. According to Vipul Sabharwal, director sales, Nokia India, "this move is not just distressing for the industry, but also shortsighted, self defeating and bound to reverse the growth of the industry, thereby impacting the socio-economic development of the state as well".
"This is a classic case of not understanding that this is a global market and it takes less than a dollar to transport phones across continents. We are sure to see a surge in grey market stocks coming in from Dubai, Singapore as well as neighbouring states", said another industry official.
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