Make In India - For Smartphones Could Get Tripped Because Of GST

About 40 global Smartphone makers have been attracted to India since last two years. This was the result of the changes in the norm making it easier to make phones in India and sell them to about billion mobile subscribers. This has scaled the investments of the Roadmap To GST Implementation government in electronic manufacturing. The scaling up has been about tenfold, that is, from Rs.11, 000 crore to Rs.1.24 lakh crore. In the current tax regime about ten percent of the tax arbitrage has been for the manufacturing of the mobile phones in India. However, after the implementation of the GST, this would undergo a change. It is hoped that the government would try protecting the arbitrage somehow.

A report of IIMB counterpoint released in November 2016 estimated that about 180 million mobile phones were manufactured in India in 2016 contributing to the growth by 125 percent over a period of a year. This created about fifty thousand jobs in India.

India undoubtedly has been successful in making the companies like Micromax, Xiaomi and Samsung produce the phones at cheaper rates. The new taxation regime under GST might lead to the neutralization of the cost benefits of making these phones in India. It is expected that the arbitrage would be protected by the government somehow.

In the previous budget, a concession of one percent on the excise duty of manufacturing of the Ind AS Implementation phones in India was imposed but 12.5 percent excise duty was imposed on the phones imported to India. This increased the local manufacturing of mobile phones in India.

After the implementation of the GST, the mobile phone manufacturers will have to pay a unified tax of eighteen percent and the excise duty component will not be segregated. This would curb the exemption on the basis of the domestic manufacturing because the option of the one percent duty without the credit will be subsumed in the GST.

The government has been requested by the tax experts to not only continue the tax differentials but also maintain the same at the rate of 8-9 percent. The manufacturing body of the electronic devices has however stated that the tax burden on the manufacturers would get reduced because of the GST being on transactional value.

Taxes being paid at multiple levels burden the manufacturers with 25 to 30 percent and this percentage would reduce Financial Transaction to seventeen to eighteen percent because of the GST.There is one more aspect to the implementation of the GST. For providing the competitive advantage to the mobile phone manufacturers, the industry will have to wait for the decision of the states that is, wanting to extend the lower GST rates or not.