Higher-end mobile sales down by 75 percent due to rise in VAT
By siliconindia   |   Wednesday, 15 July 2009, 18:12 IST   |    1 Comments
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Higher-end mobile sales down by 75 percent due to rise in VAT
Bangalore: The mobile handset sales have dropped drastically by 50-75 percent after the recent increase in the value added tax (VAT), claims the Maharashtra mobile industry. The tax levied on the mobile phone sale was increased to 12.5 percent from four percent with effect from July 1, 2009, reports DNA. "We have seen a 40-50 percent drop," said Rajiv Agarwal, CEO, The Mobile Store, India's largest chain of multi-brand mobile phone outlets. Handset prices has gone up around eight percent in Maharashtra. Taxes on IT and telecom products were reduced to four percent across the country in 2002, a government initiative for increasing tele-density. The telecom market is on a boom since then, having 400 million connections now. Maharashtra is expected to sell 10-12 million handsets this year, out of a total of 120-150 million sold in the country. The state government's VAT revenues increased from 2 crore in 2001-02 to 140 crore during the last financial year. Pankaj Mohindroo, President, Indian Cellular Association, warns that the government will emerge a loser with these impacts of the tax-hike. "The first 12 days of the new tax regime has seen a massive 75 percent drop in Tier 1 (top level) orders for cell phones in Maharashtra as merchants are ordering less in anticipation of lower demand, if the 75 percent drop gets translated into the retail level, ironically, the VAT revenues will drop by 25 percent and Octroi will drop by 75 percent from the current 95 crore a year," he claimed. Maharashtra is not the only state to propose increasing VAT collection from mobile phones, Uttar Pradesh, West Bengal and Madhya Pradesh have also tried to catch the sector as a potential VAT cash-cow, which generated 1000 crore last year. As UP and West Bengal have dropped the idea, MP is also expected to follow them, states Mohindroo. "With rural-tele-density at a meager 12.5 percent, there is a long way up ahead for rural mobile telephony uptake, making handsets more expensive, will only serve to decelerate rural penetration," he added. The higher rates of taxes can provide a steep price differential between the organized and the 'grey' channels of distribution, pushing the former out of business. "There is a 13 percent price difference compared to neighboring states and a 17 percent difference compared to phones smuggled from outsides the country. That is enough to damage the business model," said Agarwal, The Mobile Store.

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