Mobile Phone Makers Push for 5% GST Rate to Boost Demand

Mobile phone makers are seeking a 5% GST rate, down from the current 18%, to boost demand in a stagnant market. The industry has been affected by higher GST rates, which have strained working capital and added to manufacturing costs, weakening India's competitiveness. Industry bodies had previously petitioned for a 12% GST rate, but now seek a further reduction.

Mobile phone makers in India are pushing for a reduction in the Goods and Services Tax (GST) rate on their products and components from the current 18% to 5%. The industry bodies representing device manufacturers have long been advocating for a lower GST rate to stimulate demand in a market that has remained stagnant at 150 million units annually over the past four years. Higher GST rates have been cited as a significant factor contributing to the stagnation, as they have increased the cost of manufacturing and strained working capital [1].

The industry has previously petitioned the finance ministry for a shift to a 12% GST rate during the government's review of GST rate slabs. However, Prime Minister Narendra Modi's August 15 announcement on GST reforms has renewed the push for the lowest slab of 5%. Pankaj Mohindroo, chairman of the India Cellular & Electronics Association, which represents several phone makers including Apple, argues that the current 18% rate has hit affordability, digital access, and domestic market expansion [1].

In addition to the reduction in the GST rate for mobile phones, the industry is also seeking to bring the GST rate for parts, components, and accessories under the 5% bracket. The GST Council's fitment committee had originally proposed a 5% rate, but it was later raised to 18% in 2020. Mohindroo believes that according to the fitment formula, mobile phones should have been taxed at 5% GST, and the current 18% rate has grievously impacted demand [1].

Telecommunications companies are also hopeful of being included in the lower GST slab under consideration. The finance ministry has proposed two slabs of 5% and 18% instead of the current five rates. S P Kochhar, director general of the Cellular Operators Association of India, representing Reliance Jio, Bharti Airtel, and Vodafone Idea, expressed optimism that the government would include the telecommunications sector in the reforms, providing much-needed relief [1].

The proposed GST reforms aim to simplify the tax structure by replacing the current four-tier system with a two-rate system of 5% and 18%, plus a separate sin tax. This reform aims to ease costs for the middle class and boost demand. Items like small cars, insurance, and daily essentials may get cheaper, potentially spurring consumption, job creation, and export competitiveness [2].

The expected consumption boost from the GST overhaul is expected to offset around Rs 50,000 crore in revenue loss. The revised GST structure eliminates the 28% category, which will likely bring down the prices of cars, motorcycles, and consumer durables like washing machines, making them at least 10% cheaper. The Nifty Auto index jumped 4.61% on Monday morning on these expectations [3].

The GST overhaul and the resultant spending are expected to further boost economic growth, particularly after a big thumbs-up from global ratings agency Standard and Poor (S&P). S&P has upgraded India's credit rating for the first time in nearly two decades [3].

References:
[1] https://www.business-standard.com/amp/industry/news/phone-makers-seek-5-gst-on-devices-parts-and-components-amid-rate-rejig-125081801246_1.html
[2] https://m.economictimes.com/news/economy/policy/cars-acs-televisions-full-list-of-items-that-are-likely-to-get-cheaper-under-new-gst-reforms/articleshow/123360812.cms
[3] https://newsarenaindia.com/economy/gst-overhaul-may-make-cars-acs-cell-phones-cheaper/53678