Cell phones may become costlier in Maharashtra

MUMBAI, INDIA: The Maharashtra Government's proposal to raise the value-added-tax (VAT) from 4 per cent to12.5 per cent on the sale of mobile handsets has caused panic in the mobile phone market in the State. The proposal was made last week during the ongoing budget session of the State Assembly.

Though the final decision on the proposal is yet to be made, there's a growing fear among the retail industry that the move to hike VAT will decline the legal sale of handsets and could lead to grey marketing. And this will naturally have a negative impact on the tax revenue front too.

According to Kumar Rajagopalan, CEO of Retailers Association of India (RAI), this decision is unfortunate for Maharashtra state and also for the general public.

“If the rest of India is having 4 per cent VAT and if Maharashtra is imposing 12.5 per cent on mobile phones, then the public will not buy the genuine mobile handsets with IMEI number from local market or retail stores. They will buy the phones from other states or ask their relatives or friends to buy for them from other places,” Rajagopalan told CyberMedia News.

“It will create situation that existed about 4-5 years back, where about 90 per cent of the mobile market was grey and only about 10 per cent was official. And again, it will encourage grey marketing in the state as mobile phone costs will rise with hike in VAT,” Rajagopalan said.

He said this will affect the market revenue and the customers opting for the grey market will not get benefits like service support or product warranty and other benefits.

“Why can't we have an equitable sales tax structure across India? And if, Maharashtra state wish to have its own unique tax structure then it will certainly hamper the retail business of mobile handsets,” Rajagopalan reacted.

However, the Indian Cellular Association (ICA) is optimistic on this issue. “We have discussed this issue with the Maharashtra government and have tried to explain the business impacts of the proposed hike in VAT. We hope that they will not implement the tax proposal and could withdraw it,” said Pankaj Mohindroo, ICA's national president.

According to Vinnie Mehta, the executive director of Manufacturers' Association for Information Technology (MAIT), mobile phones are no longer luxury items; today they are considered very essential communication tool for the common man.

“With convergence happening, the boundary between computer devices and mobile phones is slowly diminishing. While computers are still a bit complex, mobiles have been simple and easy to use by people. And so taxing such useful device could impact the economically challenged people like students and could impend the growth for common people,” Mehta viewed.

Do you think it is justified on the part of Maharashtra Government to present such proposal while the entire world is taking about bridging the digital divide?