Indian handset industry demands GST reduction on mobile phones, components

India’s handset industry has demanded that the GST rate on mobile phones should be reduced from 18% currently to 12% and the GST rate on parts and components should be reduced to 5%, reasoning that the high rate has led to a rise in prices which is decreasing demand for mobile phones.

The Indian Cellular & Electronics Association (ICEA) and consulting firm Ernst & Young (EY), in a joint report said that the 12% GST rate on mobile handsets increased tax by almost 50% in this sector from a prevailing national average rate of ~8.2% (pre-GST era). The industry was emerging from GST with a tax increase, and the Government once more increased the rate by another 50% (i.e. from 12% to 18%).

This increase in the GST rate has a trickle-down effect leading to the rise in prices for the consumer, which in turn is decreasing the demand for mobile phones, ICEA said, adding that is becoming a deterrent to the government’s ‘Digital India’ initiative.

“Affordability will be key to India reaching an $80 billion size in the domestic market by 2026, and GST rates will play an important role,” said Pankaj Mohindroo, Chairman, ICEA.

ICEA represents companies Apple, Lava, Micromax, Xiaomi, Oppo, Vivo, among others.

The handset body said it has communicated to various state Chief Ministers (CMs) to reduce GST on mobile phones, as well as, on parts & components.

It stressed that mobile phone subscribers have crossed the one-billion mark and the monthly sales of mobile phones have been consistently in the range of 20-27 million units.

“Rational indirect taxation, i.e. VAT and Excise duty which cumulatively was between 6-8% for over a decade and a half, was one of the reasons that the mobile industry flourished,” it said.

“In most products and commodities, India’s share of global markets is around 2-3% which is in sync with our share of Global GDP, i.e. 3.2%, but in mobile phones, our value share is over 5%. Rational taxation was one of the reasons for the same,” ICEA said.

The body said that the Production-Linked Incentive (PLI) scheme for local manufacturing of mobile handsets has helped attract global and domestic manufacturers which resulted in the increase in production of mobile phones from 6 crore units valued at Rs 19,000-crore in 2014-25 to 33 crore units valued at Rs 2,20,000-crore in 2020-21.

“The Government has realized the importance of mobile phones in developing the Digital Agenda. The rates for mobile phones and parts must be rationalized, and as highlighted in this report, brought back to 12% on the mobile phones and simultaneously removing the inverted duty structure,” said Bipin Sapra, Partner EY.