Goverment Has Increased VAT On Mobile Phones
Tuesday, July 07, 2009
Sometimes, way of taxation may lead to the decrease in the significant revenues and can also lead to reduce the existing amount of collection. Similarly, Maharashtra Government may lead to loss in revenue as has increased the value added tax (VAT) from 4 per cent to 12.5 per cent on mobile phones from 1st July. Nokia estimates that this will shrink the government's revenue from Rs 168 crore now to Rs 33.5 crore by the year end.
Experts comments, market size is also expected to fall as trade will get diverted to neighbouring states. Estimate suggests that the regressive move on the part of the Maharashtra government will cause shrinkage in the market size of mobile handsets from Rs 4,200 crore at present to Rs 268 crore by the end of this year.
R Muralidharan, Executive Director, PriceWaterhouse Coopers said that, "mobile handsets are classified as information technology products, which usually do not attract such high rate of taxation. This is because India needs to improve its telephone density in order to improve its ranking according to world development indicators. If at all such a move has to be made, it should be done in co-ordinated effort with other states so that cross border purchases don't go up".
Industry analysis reveals, the prices of the mobile phone will hike from anything between Rs 127 for the lowest segment to Rs 2,550 for high segments as soon as the Maharashtra Govt. tax plan will be implemented. As per both the industry and indirect tax experts, this is likely to give a fillip to the grey market.
A telecom hardware industry analysis prepared by Nokia says, "The common man usually starts with a sub-entry level phone of Rs 1,500. In the new dispensation of 12.5 per cent VAT, he has to pay Rs 127 extra on account of the 8.5 per cent VAT hike. Normally, the man on the street will shift to the grey market to save Rs 187 on VAT. Our experience shows that Rs 30 is the point at which the consumer turns away from the official market to the grey market. He is not ready to pay a tax higher than 4 per cent on a mobile phone".
[Via: infibeam]