Mobile phone makers worried over new GST regime

Mobile phone makers with assembling units in the country are concerned what the final Goods and Services Tax regime holds for them. Their chief apprehension is that under the GST structure, all indirect central and state taxes, including excise duty, sales tax, service tax, and value-added tax, will be subsumed into a single rate, so the concessions currently offered by different states will come to an end.

The manufacturers are planning to seek clarification from the government on the final duty structure. According to them, since the differential between domestic manufacturing and imports will end, the incentive for local production could be undermined.

They are thinking to suggest that the states levy a GST of 5 percent across the country. The chief demand will be that the differential between domestic manufacturing and imports is maintained and the benefits given by states are retained.“It’s work in progress. How it will shape up is not clear,” Pankaj Mohindroo, founder of the Indian Cellular Association, the apex body of handset makers.

In the last budget, the finance minister had imposed a 12.5 percent countervailing duty (CVD) on mobile phones that were imported compared with a 1 percent excise duty for those made in India. As GST is a destination-based tax on consumption, it will not be possible for states to continue to give the VAT exemptions they give today. And since the GST will subsume all taxes, the excise advantage given to local manufacturers will also be difficult to retain.

“How do they (the government) differentiate for incentivising manufacturing in India is not clear,” Bipin Sapra, partner for indirect taxes at EY, said. “All other incentives…all of them are up for reckoning in GST. They will have to create a mechanism for incentivising manufacturing in India,” he said.

The experts, however, feel that the anxiety is uncalled for. According to them, the elimination of cascading of taxes in the GST regime would somewhat address the issue of increased tax liability due to higher rates. For instance, currently, the 1 percent excise duty is without input tax credit on raw materials and capital goods, which practically takes the incidence to around 4 percent. Then comes the state VAT which is in the 5-15 percent range.

Nearly 20 firms currently have handset factories in India including Taiwanese firm Foxconn, US-based Flextronics, South Korea’s Samsung Electronics and China’s Vivo. The concerns over the GST regime have come at a time when handset production in India is projected to double in the current fiscal year from 100 million units in FY16.