Financial Daily from THE HINDU group of publications
Tuesday, Jan 28, 2003
Mobile handset producers seek cut in sales tax
THIRUVANANTHAPURAM, Jan. 27
THE Indian Cellular Association (ICA), the representative body of cellular handset manufacturers and distributors in the country, has appealed to the State Government to bring down the sales tax on the handsets to four per cent from the existing12 per cent.
According to Mr Adarsh Shastri, Advisor, Strategy and Regulatory Affairs of ICA, the higher ST rate in the State has resulted in a thriving grey market and the share of legitimate handset market in the State is less than five per cent.
In sharp contrast, in Delhi, Andhra Pradesh, Karnataka and Tamil Nadu, the legitimate market accounts for more than 40 per cent.
Mr Shastri, who met the Chief Minister, Mr A.K. Antony, the Finance Minister, Mr K. Sankaranarayanan, and top Finance Department officials, said the State Government would be able to raise revenues to the tune of Rs 3.5 crore if it checked the growth of the grey market by rationalising the ST rate to four per cent. He, however, did not get any immediate response from the Government to the request.
He pointed out that in view of the rampant black market in mobile handsets in the country, the Union Government had abolished the countervailing duty in the 2002-03 Budget to help narrow down the price differential between the legal and illegal markets.
Besides, mobile handsets had been classified as IT products and the uniform sales tax rate of four per cent on IT products was now applicable to the sale of handsets also.
Though most State Governments did not implement the uniform sales tax rate initially, ICA was able to convince most of them and as of now, the rate had been implemented by 15 States.
The impact of the ST reduction was already visible in these States with the legitimate market share having gone up from five per cent to 40 per cent. This is expected to rise to 90 per cent by the end of 2005, Mr Shastri said.
He noted that Kerala was one of the major markets for handsets in the country with nearly eight lakh mobile connections already in place. And going by the trend, about three lakh handsets would be sold in the State in the current year.
But the grey market here being what it is, the major handset manufacturers are reluctant to set up shop and allied facilities that deprived the mobile phone users of superior customer service and warranty advantages.
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