GST Impact on Mobile Phone

People looking to trade their old phones for shiny new ones through exchange schemes might be seen holding on to their handsets for a bit longer. With the GST inching closer to roll out date, word is that mobile handsets are set to become more expensive.

 

In the current scenario we see that the mid-range phones are getting cheaper and more loaded, while premium phones are getting more expensive and sophisticated. Chinese manufacturers have entered the Indian market and are setting up local assembly plants, bringing tough competition.

Mobile handset companies often come up with promotional schemes to give a boost to sales. Certain schemes allow handset users to purchase new smart phones against the older ones post paying the differential value. Valuation of an old mobile phone is determined according to various conditions and eventually reduced from the value of new mobile phone.  At the moment, the amount reduced on exchange is not taxable under VAT.

‘Barter’ has however been included in the definition of supply in the Model GST law. Hence in the future even the reduced amount will be taxable. Thus the scheme of handset barter that the noble businessmen had come up with, will probably face a setback.

It has also come to our notice that in all probability, mobile handsets will be taxable at a whopping rate of 18-20%. If you’re pro-GST (we are too, I promise) it’ll dampen your mood to know that mobile phones are currently taxed at a mere 5%. This means that the prices for good smartphones and feature phones are going to rocket up. Losing that smile,are we?

Wait, there’s more. Apparently, to avoid losing customers, the companies may have to cut down production cost. Companies may opt for different ways depending on their models. Some may choose to cut down on advertisements (no more silly jingles ringing in your heads!) while some may focus only on the sub-Rs 10,000 segment which is the most competitive. Another solution for the companies would be to set up manufacturing units in India to eliminate shipping costs.

 

 

For the aam janta which isn’t always careful with their tech products, producers focusing on the sub Rs 10,000 sector is a blessing in disguise.

Hold on. All is not lost.

Virtually, CENVAT Credit is like a credit balance in bank account that can be adjusted towards the excise duty payable. It means instead of paying cash towards central excise on shipment of goods, the exporter can adjust the excise duty paid on the inputs and machinery.

At present, mobile companies are required to reverse majority of CENVAT Credit (assuming they render certain taxable services). The reversed CENVAT Credit becomes a cost to the company. Under GST, entire credit of services would be allowed to the company. Though procurement of service/ goods would become expensive (due to increase in tax rate), the total input GST credit would be available with the company to discharge its output GST liability. This would provide great benefit to the company and should impact the pricing of the product.

Like every cloud has a silver lining, GST is going to bring some good effects too. E-Commerce companies will be able to freely deliver goods across the country and certain complaints of specific states not falling into the delivery zone would be eliminated. Even if the E-commerce companies do charge for deliveries, the shipping would be quicker. That counts for something, right?