Mobile handset firms seek reduction in GST on components to 12 pc

Mobile handset companies have requested the government to lower goods and services tax on mobile phone components and accessories to 12 per cent from the current 18 per cent and address procedural issues that are troubling the industry.

The companies, under the aegis of the India Cellular and Electronics Association (ICEA), have written to Finance Minister Nirmala Sitharaman for reduction in GST on mobile phone components and accessories such as back covers, batteries and headphones, to 12 per cent from 18 per cent currently.

A GST of 12 per cent is imposed on mobile phones, and higher tax on its part has led to inverted tax structure in the segment.

"Inverted duty structure applicable on the mobile handset industry as per the current GST regime has been impacting the manufacturing sector. The inverted duty structure has led to a serious cash flow issue for the manufacturers, which definitely impacts the manufacturing competitiveness," ICEA Chairman Pankaj Mohindroo said in the letter.

India had two mobile phone factories in 2014 but now, it has 268 factories engaged in manufacturing of mobile phones and their accessories. Prime Minister Narendra Modi during his 13th India-Japan annual summit had announced making India top mobile phone manufacturing destination.

"GST applicable on inputs, components, sub-assemblies, accessories of mobile handsets should not be more than that of the GST applicable on the final product which is the mobile handsets," Mohindroo said.

Though there is a mechanism in GST to provide refund of input tax credit (ITC) but there is no way to provide refund of accumulated ITC on the GST paid on capital goods and services in case of inverted structure.

"This creates an additional burden on the industry affecting the cash flow situation. All new manufacturers are investing heavily on capex (capital expenditure) and business promotion for creating brand image. GST on such expense is an additional cost to the manufacturer, as they are not allowed refund of such accumulated credit," the letter said.

The ICEA has urged the finance minister to reduce timeframe for refund of GST credits to at most a week. The industry body has also demanded input credit on manufacturing plant or shed, and canteen service, among others.