Well, 1st of July is just around the corner and it marks the day when the much-awaited Goods and Service Tax (GST) regime will kick in. It’s a major tax reform and a significant step towards reformation of indirect taxation in India since we got independence for British Colonialism. In simple words, GST is an amalgamation of many individually applied Central and State taxes into a single tax.
Last Thursday on 18th May 2017, the 14th GST council meeting was held in Srinagar, J&K where it has approved the different slabs of GST rates to be levied on certain goods. As per the council, the mobile phones will be taxed at 12 percent whereas the GST rate for laptops and desktop was fixed at 18 percent.
As of now, mobile phones are charged 5% in most states and 12% or more in some. With GST entry tax levied by several states & various difficulties/documentation to bring goods inside a state would go away.
Interestingly under GST regime e-commerce players like Amazon, Flipkart and others who ship their products from low VAT states like Karnataka to save on taxes would see a challenge. Differential rates across states would vanish and so will their advantage. Add to this the GST filing formalities for e-commerce sites & vendors would also increase.
The GST rate could also have major repercussions on the government’s other brainchild – Make In India campaign. In past couple of months, leading Chinese smartphone makers including Xiaomi, Coolpad, OnePlus has set up their manufacturing units in India because of Make In India push. As per Counterpoint Research, around 80 percent of 59 million phones sold in India in the first quarter (January to March 2017) were made in India. As of now, the duty charges for mobile phone imported and sold in India is capped up to 27 percent whereas the phone manufactured locally attract only 6-7 percent of taxes (1% excise + 5% VAT in most states).
Well, that advantage for local manufacturing may erode a bit once GST is introduced. While basic import duty will remain, additional customs duties would go away and GST at 12 percent would be charged on imports. It means the prices of imported mobile phones could be lesser than before, thus making the government consider giving some additional sops to local manufacturing.
So, it would be interesting to see whether the government is willing to bend on GST rates for mobile phones to come in rescue for Make In India.