GST hike to hit domestic sales, make mobile phones costlier

The GST Council's decision to hike tax on mobile phones to 18 per cent will make handsets costlier and hit domestic consumption as well as Make in India programme, industry players said on Saturday.

"This was time for statesmanship especially when the country is going through a crisis and as a nation, we have fallen short," ICEA chairman Pankaj Mohindroo said.

He said that the increase of GST from 12 per cent to 18 per cent will be extremely detrimental to the vision of Digital India.

"Consumption will be stymied and our domestic consumption target of USD 80 billion (Rs 6 lakh crores) by 2025 will not be achieved. We will fall short by at least Rs 2 lakh crores," Mohindroo said.

The government under National Policy on Electronics 2019 has set target to create a Rs 26 lakh crore domestic electronics manufacturing ecosystem by 2025. This includes production of 1 billion mobile handsets valued at around Rs 13 lakh crore comprising Rs 5 lakh crore domestic sales and exports worth Rs 7 lakh crore.

The targets were set in terms of USD and due to variation in exchange rate the domestic market target has swelled by another Rs 1 lakh crore.

The industry body had approached Finance Minister Nirmala Sitharaman on March 12 against proposal to hike GST on mobile phone saying that it will be detrimental for consumer sentiments buying handsets and in turn impact local manufacturing of the devices.

ICEA had said that the industry is under deep stress because of disruption in the supply chain due to coronavirus and it is very inappropriate time to consider hike in GST rate of mobile phones from current level of 12 per cent.

The GST Council on Saturday decided to increase tax rate by 6 percentage points on mobiles and certain components from April 1 due to the inverted duty structure, Finance Minister Nirmala Sitharaman said.

Counterpoint Research Associate Director Tarun Pathak said, "This will impact the pricing and especially at a time when we are staring at uncertainty in the larger electronics supply chain due to coronavirus. An increase in price means a section of users will either go for second hand or even turn to grey market".

Chinese handset maker Xiaomi noted that the entire smartphone industry has been committed to Prime Minister's flagship "Make In India" initiative. "But today's recommendation by the GST Council to raise the GST rate on mobile phones from 12% to 18% will seriously harm the entire industry."