The Goods and Service Tax (GST) Council of India has announced an increase on the rate of tax for smartphones. The current GST rate on smartphones is 12 percent and as per the 39th GST meeting, it will be increased by 6 percent to 18 percent. What this means is that smartphones will become more expensive, as the new tax rate comes into effect from April 1st. Finance Minister Nirmala Sitharaman said that the price hike was aimed at correcting the rate of input tax paid on a purchase more than the rate of tax on the final finished product. The minister added that any correction in the rate structure will be taken up later.
The industry is already struggling with depreciating INR & supply chain disruption due to Covid-19.
At least all devices under $200 (=₹15,000) must be exempted from this. https://t.co/hOMpSpTyKk
— Manu Kumar Jain (@manukumarjain) March 14, 2020
Commenting on the new GST rates, Xiaomi India MD Manu Kumar Jain tweeted that the 6 percent hike will have a negative impact on the industry. He noted that the smartphone industry is struggling with profitability due to the depreciating Indian rupee against the US dollar. “Everyone will be forced to increase prices. This will further weaken the mobile industry’s #MakeInIndia program” Jain tweeted. In a separate tweet, Jain also requested both PM and FM to reconsider the GST hike. He suggested that smartphones priced under $200 (~Rs 15,000) should be exempt from the GST rate hike.
The move to hike GST rate on smartphones comes at a difficult time as the country is already suffering from an economic slowdown. Additionally, the coronavirus pandemic has wreaked havoc in the technology industry. There is a shortage of demand and supply of components and devices as manufacturing factories are been shut down in China and across the world. Any price rise at the moment will further worsen business prospects for smartphone brands.
Smartphone manufacturers in India are known to be aggressive on prices. The new GST rate will force brands to increase the prices on devices or reduce their profit margins. The increased prices will ultimately lead to buyers paying more for smartphones and it remains to be seen how the consumer market reacts to this.