Mobile phone makers pitch for 5% GST in rate revamp to spur demand

Mobile phone makers are seeking a reduction in the goods and services tax (GST) to 5 per cent from the current 18 per cent, arguing that a cut would spur demand in a category that has remained stagnant at 150 million units a year for the past four years. Higher GST rates have strained companies’ working capital and added to cost disabilities in manufacturing, weakening India’s competitiveness.

 

Industry bodies representing device makers had earlier this year petitioned the finance ministry for a shift to 12 per cent, as the government reviewed GST rate slabs. But Prime Minister Narendra Modi’s August 15 announcement on GST reforms and reducing the burden on the common man has renewed the push for the lowest slab.

 

“The rationalisation will bring huge relief to millions of consumers. While the sector is a star performer under Make in India, demand for mobile phones has been stunted for the past five years. Volumes have dropped from 290 million to 220 million annually, while smartphones have remained static at around 150 million for four years,” said Pankaj Mohindroo, chairman of the India Cellular & Electronics Association, which represents several phone makers including Apple. The higher GST, he said, has hit affordability, digital access, and domestic market expansion.

 

The industry has also flagged anomalies in the GST rate for parts, components and accessories, and wants these brought under the 5 per cent bracket as well. The GST Council’s fitment committee had originally proposed a 5 per cent rate, but the Council raised it from 12 per cent to 18 per cent in 2020.

 

“According to the fitment formula, mobile phones should have been at 5 per cent GST, since in the value added tax-plus-excise duty formula they fell into that category. The 18 per cent rate, even after the production-linked incentive, has grievously impacted demand,” Mohindroo added.

 

Telecommunications companies too are hopeful of being included in the lower of the two slabs under consideration. According to reports, the finance ministry has proposed 5 and 18 per cent slabs instead of the current five rates — nil, 5, 12, 18, and 28 per cent.

 

“We are pleased to note the proposed reductions in GST as indicated by the Prime Minister, which is a welcome step. We are hopeful that the government would also include the telecommunications sector in the reforms, which would provide much-needed relief to the industry,” said S P Kochhar, director general of the Cellular Operators Association of India, which represents Reliance Jio, Bharti Airtel, and Vodafone Idea.