India is shifting to a new tax regime called Goods and Services Tax (GST) starting from July 2017. While the new tax structure benefits some sectors, other industries will bear the brunt of higher taxes. Unfortunately, the smartphone industry falls under the latter category.
Under the current tax regime, imported mobiles are taxed at a rate of 18-27 percent, and domestically manufactured mobiles operate under low tax rates of 6-9 percent. However, with the implementation of GST, both imported and locally made mobiles will be taxed at a rate of 12 percent, thus, eliminating the tax benefits on Made in India mobiles.
Hence, the prices of imported mobiles may decrease, and locally made mobiles may get costlier by 4 to 5 percent, which will be more likely passed on to the customers. It may jeopardize the crores of investments made by the companies in setting up manufacturing plants in India.
According to Counterpoint Research, four out of five mobiles shipped in Q1 2017 were made in India. Also, the research firm states that 80 percent of 59 million phones sold in Q1 2017 were made in India. Considering the magnitude of the local production, the smartphone industry may cripple under GST if Government doesn't come up with any incentives for domestically produced mobiles.
Rubbing salt in the wound, Laptops, TVs may also cost slightly higher as they fall under highest tax slab of 28 per cent. Your phone bills will also shoot up as the tax rate will be going up to 18 percent from 15 percent. It may further wreck havoc in an already shabby Indian Telecom industry.
On the other hand, it may also undermine the Govt's schemes like Made in India, Digital India, Cashless India, etc. However, it is too early to assume if Government ditches these initiatives in favor of new tax structure.