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.
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.
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.