GST increase on smartphones adds to industry’s worries

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The increase in goods and service tax (GST) on smartphones from 12% to 18% is expected to push up product prices and hurt the country’s smartphone industry. According to industry stakeholders, the move will add to the woes of companies already battling intense competition and supply shortages from China due to the Covid-19 outbreak. Manu Jain, managing director of Xiaomi India, India’s top mobile phone company, said the industry “will crumble” from the decision taken by the GST Council on Saturday. He also said India’s smartphone industry has been “struggling with profitability” as the rupee has weakened against the dollar, increasing import costs.

“We request the Honourable Prime Minister and Finance Minister to reconsider this. At least for people who cannot afford to buy expensive phones,” Jain tweeted. Pankaj Mohindroo, chairman of Indian Cellular and Electronics Association (ICEA), said, “Our domestic consumption target of $80 billion ( 6 trillion) by 2025 will not be achieved” due to the GST hike.

The government’s rationale for the higher GST was to correct the inverted duty structure in the smartphone industry. So far, GST on smartphones was 12%, while it was 18% on phone components. But N.K. Goyal, president of Telecom Equipment Manufacturers Association of India, said the “ideal way” would have been for the GST on components to be decreased to 12%. Ahead of the GST meet, ICEA said in a letter dated 12 March to finance minister Nirmala Sitharaman that any increase in tax will “adversely affect” the government’s Make in India programme and disrupt internet penetration, adversely impacting digital payments in India. The Covid-19 outbreak has led to large-scale factory closures in China, causing supply shortages. The impact of the shutdowns will start showing from the June quarter, said industry experts.

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