CBEC New GST Rates From April 1st: A Spare Of Thought For The Mobile Industry

The 39th GST Council meeting on 14th March 2020 took far-reaching decisions on certain matters related to GST. The Honorable Finance Minister said that the decisions taken in this crucial meeting aimed to correct the inverted duty structure. It is to be noted that it was impacting several industries.

Matchsticks

As decided in this meeting, all types of matchsticks are going to be put in the uniform GSTbracket of 12% with effect from 1st April. As of now, the handmade ones are taxed at 5% and all the other variants are being taxed at 18%. The modified rules seek to rationalize all the variants of matchsticks into a single tax bracket.

Aircraft Operations

Also, the GST on MRO (Maintenance and Repair Operations) services related to aircraft operations has been reduced from the existing 18% to 5%, with full ITC (Input Tax Credit). This is expected to encourage small scale businesses and local industries in this sector.

Mobile Phones

Perhaps the most important announcement coming out from this meeting is the increase of GST on mobile phones and certain associated parts. GST on this category of items has been increased from the existing 12% to 18 % from the 1st of April onwards. Mobile phones of some brands may become costlier from the coming Financial Year. But, the Government says the GST hike was necessary to rectify the inverted duty structure prevailing in the Indian cellphone industry.

Xiaomi has already hinted at a rise in the prices of its models in the immediate future. Other smartphone makers may also follow suit. And it can have an impact on Govt’s initiatives to increase internet penetration in India. As of now, a large part of the Indian population access the internet on their smartphones. And reducing demand for smartphones may eventually put brakes on the speed of the Digital India campaign of the Govt. as well.

As of today, the Nation is fighting hard against the COVID-19. And businesses are going through a roller-coaster ride amidst the nationwide lockdown. The supply chains of most businesses have been disrupted and the electronic supply chain is no exception either. An increase in GST may force mobile phone manufacturers even more to increase the price of their products. This will mean that a large section of buyers may opt for second-hand sets or may even look to get their chosen models from the grey market.

ICEA approached Ministry

There is some good news coming in too! Realme, the Chinese smartphone giant has announced something. That is they will not allow their buyers to be impacted by this rise in GST. The India Cellular & Electronics Association (ICEA) has already approached the Finance Minister with a request to reconsider the GST hike on mobiles. They believe that the hike and the resulting change in consumer sentiments may impact local device manufacturers negatively. The Association has also pointed out that the recent hike is based on the ‘wrong’ premise that the excise duty on mobiles in the pre-GST regime was 12.5%, whereas, it was only 2% at that time.

There are similar observations from other quarters also. And we hope that the Government will roll back the GST hike sooner than later. It will give much-needed relief to the Indian mobile sector troubled already by huge job losses and the COVID-19 outbreak. However, this will prevent any possible return of the ‘grey market’ as well.

The Finance Minister said after the meeting that the inverted duty structure has impacted other industries like footwear and fertilizer. And issues related to these industries would be taken up for discussion in the GST Council meetings scheduled for later.