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GST hike amid COVID-19, economic slump to derail mobile industry: ICEA
India's leading mobile industry association, ICEA has expressed shock and disappointment over the proposed increase in Goods and Service Tax (GST) on mobile phones from 12 per cent to 18 per cent.
The main criticism is over the timing and the resultant increase in prices.
Unless the proposed GST hike is reversed, it will place an additional burden of Rs 15,000 crore on the common man, adversely impact over 100 crore Indian consumers.
When coronavirus is spreading panic, economic slowdown is at its peak, consumer sentiment is battered and stock markets are in free-fall, increasing GST is both counter-intuitive and insensitive. This will lead to immediate job losses and severely dampen future investments in manufacturing.
Consumers would bear the worst brunt of this increase. It sends a wrong message to the consumers at the time when they need government's hand holding the most. Till June 2017, most consumers were paying a VAT of 4-5 per cent and 1 per cent excise duty on mobile phones.
The 12 per cent GST on mobile phones in place of VAT was already a massive hike in taxes at a time when GST was aimed at reducing the tax on consumers. With 18 per cent GST, the extremely price sensitive Indian consumer will either delay their purchase or buy in the grey market.
The 18 per cent GST hike will also bring back the bad old days of early 2000s when the grey market in mobile phones was rampant at 90 per cent. It reverses years of painstaking efforts by governments and industry to increase mobile manufacturing and penetration by sensible policy interventions and tax rationalisation.
This move will also prove to be disastrous for the already fragile retailer community wherein lakhs of small and mid-sized retailers survive by selling mobile phones. The retailers are already suffering due to the economic slowdown.
They will now come under further pressure. Thousands of retailers have already shut shop over the last two years and thousands more will face closure due to the proposed GST hike.
ICEA points to the fact that the GST hike is contrary to the Prime Minister's vision to make India the world leader in mobile phone manufacturing. Further, reaching US $80 billion domestic production of mobile phones, as per the National Policy on Electronics 2019 will be impossible to achieve. In fact, reaching half that figure, will become a struggle.
It will also adversely impact the wider mobile manufacturing ecosystem, which has been one of the few success stories of India's "Make in India" flagship programme.
A GST hike at this stage undoes several good policy measures underway to boost mobile manufacturing, domestic sales and exports from India.
Mobile manufacturing had shown excellent results where the industry had increased production 5X and revenues 10X from 58 million units valued at Rs 18,900 crore in 2014-15 to 290 million units valued at Rs 1,81,200 crore in 2018-19. The government revenues post GST had doubled from Rs 10,900 crore to Rs 20,700 crore within two years.
To strike the sector with a higher GST at this stage is the equivalent of killing the goose that lays the golden egg. Not a savvy move by any stretch.
The rationale of correcting the inverted duty structure by increasing GST is misplaced. The need of the hour is to reduce GST on components, rather than hiking the tax on mobile phones. We look forward to persuading the GST council to review their decision in light of new facts that may have escaped their attention.