GST could trip ‘Make in India’ for smartphones

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India’s success in making firms such as Samsung, Xiaomi, and Micromax to locally produce phones could become a cropper, once the Goods and Services Tax (GST) comes into effect, as the new taxation regime could neutralise the cost benefits to make these phones in India.
GST
Since the last two years, India has been able to attract 40 global smartphone makers in the country, after it tweaked norms that made cheaper to make phones in India and sell it to the billion strong mobile subscribers. At the same time, government has been able to scale investments in electronic manufacturing over ten-fold to Rs 1,240 billion from Rs 110 billion two years ago.

 

A IIMB Counterpoint report released in November 2016 estimates that 180 million mobile phones to be manufactured in India in 2016, which is nearly a 125 per cent growth over the year-ago period. This has also helped in creating nearly 50000 jobs.

In the last Budget, the finance ministry proposed a concession and announced 1 per cent excise duty (output tax on manufactured goods) on phones manufactured in India. But, phones that are imported were announced to be levied 12.5 per cent excise duty. Besides, all components used for manufacturing mobile phones in India were exempted from customs duty.

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The higher import duties helped push local manufacturing that prompted iPhone’s contract manufacturer Foxconn committing to expand aggressively in India.

Once GST comes into effect, the mobile phone manufacturer may end up paying the maximum share of the 18 per cent unified tax (proposed under GST) and it will be difficult to segregate the excise duty component out of the total GST. Mobile handset manufacturers such as Micromax, Samsung, Lava and Xiaomi declined comment.

 

The electronic devices manufacturers’ body, however, says GSTbeing on transaction value as against excise duty on MRP should reduce the tax burden on mobile manufacturers in India.

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