Gst Rate On Smartphones Hiked – In March 2020, the Center has revised the GST rates on smartphones and increased it from 12% to 18%. This news was not appreciated by a lot of peoples and was strongly criticized by the experts. This article describes the potential effects on the smartphone market of skyrocketing tax rates.

Why the GST rate on smartphones hiked?

Before we step on to explaining the effect of this spike on the mobile market, it is crucial to know how this hike has indeed been introduced. As per the GST Council, the rise in mobile tax rates is an attempt to rectify the inverted duty structure in the smartphone industry, whereby parts were levied at 18% and finished goods at 12%.

At the 40th meeting of the GST Council, the Union Corporate Affairs and Finance Minister, Nirmala Sitharaman declared that perhaps the GST Council is trying to rectify the inverted duty structure in which all the tax imposed on supplies are high than the tax imposed on finished goods, resulting in higher refunds that eventually affect taxes.

Effect of the tax rise

Lesser demand – 

In the context of demand & supply theory, we can say the increase in the price of new phones will likely reduce the demand.   Almost all phones released after April 1 will be a little costly which customers won’t like it. This implies that businesses will need to redesign their phones in order to readjust the costs.

Costly Smartphones – 

Mobile phones are expected to be far more costly in India owing to the increase in the GST rate. People who are concerned about price will likely wait for prices will go down or buy their smartphone from the grey market or will prefer second-hand phones.

Indians are also famous for requesting family or friends to buy phones from major electronic goods carnivals and retail stores like the Dubai Shopping Festival

Effects the foreign investments – 

Manu Kumar Jain, Global VP, Xiaomi, and Managing Director, Xiaomi India, tweeted, “This will hinder demand and impact the ‘Make in India’ smartphone industry program.

It may also have a long-term effect on Internet penetration and the Digital India initiative, as many Indians depend on mobile phones to surf the internet.

Most recently, Samsung shut down its largest manufacturing plant in China and moved to Noida, India. The Korean brand did so as it felt that China’s position as a global supply chain center was moving towards a paradigm change. It is still not clear if the rise in GST on phones would have a detrimental effect on manufacturing.

And therefore experts say that varying tax rates do not exactly reflect well with foreign firms interested in setting up manufacturing plants in India. In relation, varying tax rates really just don’t force India up to a level of business simplicity.