Govt to get up to Rs 2,700 cr from mobile handset industry

Govt to get up to Rs 2,700 cr from mobile handset industry

Over 200 mn new mobile phones sold in a year out of which 70% fall in price category which FM is targeting at

Finance Minister P Chidambaram is banking on the aspiring buyers of swanky new mobile phones to boost the government’s indirect tax revenue in the next fiscal.

On the surface a 5% increase in excise duty (from 1% currently to 6%) on mobile handsets priced more than Rs 2,000 might look reasonable. But according to Indian Cellular Association, which represents all leading handset manufacturers, there are over 200 million new mobile phones sold in a year out of which 70% fall in the price category which Chidambaram is targeting at.  And with this increase in duty he could rustle up a cool between Rs 1,800 crore to Rs 2,700 crore in 2013-14 to the government exchequer from this single move.

There is of course a difference in the figures of what is the average price of a mobile phone sold in the country. According to ICA, it is around Rs 4,000 a piece. But according to Ernst & Young's telecom specialists, it could around Rs 6,000.  Considering that nearly 140 million mobile handsets are sold above Rs 2,000, he can make a substantial sum from the penchant for Indians to buy new phones.

When Chidambaram says Rs 2,000, mobile manufacturers say there is an abatement of 35% so the duty has to be paid on Rs 1,300. The same is the case for phones with an average price of Rs 4,000 to Rs 6,000.

Chidambaram, in his Budget speech, said that about 70% of imported mobile phones and about 60% of domestically manufactured mobile phones are priced at Rs 2,000 or below.  “I do not propose to change that in the case of low priced mobile phones. However, on mobile phones priced at more than Rs 2,000, I propose to raise the duty to 6%,” he announced.

“Imposition of the excise duty in the Budget will mean that there will not be many start ups in expansion due to the grey market competition,” said Pankaj Mohindroo, founder and national president, ICA.

According to Vishal Malhotra, Tax Partner – Telecom practice, Ernst & Young: “The impact of the duty hike on retail prices of mobile handsets would be about 3-4%. However, companies may consider consuming the burden at the lower end as the competition is very high while the burden is more likely to be passed to the consumers at the higher end.”

For example, iPhone 5 (16 GB), which is currently retailed at around Rs 45,500, will now cost between Rs 46,865 and Rs 47,320 if the company decides to pass on the burden of the excise duty to the consumers. “The mobile phone segment is very competitive. But we have no option but to increase prices,” said S N Rai, co-founder and director of Lava Mobiles.

According to P Balaji, VP and Managing Director, Nokia India, imposition of the excise duty on mobile handsets is likely to increase sale of grey, unbranded sub standard handsets which is not good for the consumer, industry and exchequer.

Korean handset maker Samsung, which is the leader in the smart phone segment in India, also believes that the decision should lead to an increase in prices for end consumers, according to Asim Warsi, VP -Samsung Mobile.