Amidst the gloom surrounding Coronavirus and economy in general, the Indian government has increased the GST (Goods and Services Tax) on mobile phones from 12 percent to 18 percent during a meeting in New Delhi today. This would mean that the phone prices in the fastest-growing smartphone market in the world could be hiked in the coming days.
The GST council is said to have deferred the proposal of hiking the rates on fertilizers and footwear due to the current economic slowdown and impact of the novel coronavirus pandemic. As per a report on CNBC-TV18, the council felt apt to increase the taxes on mobile phones considering it’s one of the sectors which seemingly had less impact from the ongoing economic slowdown.
ICEA, the industry body, had earlier stated that the increase in GST would be detrimental for consumer sentiment and in turn impact the local manufacturing of smartphones. Clearly, that has no bearing in the council’s decision to hike taxes on mobile phones.
“We understand that one of the logic being put forward is that the industry is suffering from inverted GST! Instead of correcting this wrong by rationalizing GST on parts, components and inputs of mobile phones, a bizarre move to increase GST on the final product is now being considered,” ICEA Chairman, Pankaj Mohindroo, had said in a letter to the Finance Minister of India earlier today.
As per the research firm, IDC, the Indian smartphone market grew by a modest 8 percent Y-o-Y in 2015 shipping 152.5 million units. In fact, India was amongst a handful of top markets which grew in 2019. The hike in GST would act as a deterrent for this growth.
“This doesn’t bode well for the growth intended by the govt for digital services,” says Navkendar Singh, Research Director, Client Devices & IPDS, at IDC India. “It has to start with more people coming in the smartphone fold. With these decisions that won’t happen.” Despite being the fastest-growing smartphone market in the world, India still has a long way to go with an estimated penetration of around 400 million people out of 1.6 billion having access to smartphones in the country.
“Considering the current supply and projected demand scenario in the next couple of quarters, brands are not in any position to absorb this hike. They will be forced to pass it onto the consumer, which will further increase the replacement cycle (which has been a major engine of growth in the market for the past couple of years),” says Singh.
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