The sales of mobile handsets fell by 75 per cent in Maharashtra during the first 10 days of the month, following a three-fold increase in Value Added Tax (VAT). Separately, the handset makers feel that that the state’s rural telecom plans would also take a hit, as the prices of handsets are costliest in the state.
“The sales of handsets through legitimate retail channels have dropped by around 75 per cent during the first 10 days (compared with the same previous period of previous month) as grey markets have begun from zero duty places, like Dubai,” Indian Cellular Association (ICA) National President Pankaj Mohindroo said.
VAT collections in the state fell by 25 per cent, while Octroi collections (state tax for certain cities in Maharashtra) fell by 75 per cent during the first 10 days, Mohindroo said quoting an ICA study.
Apart from the 12 per cent VAT, the state also levies a 5.5 per cent Octroi and customs duties of 5 per cent on imported handsets. The state sells around 1 million handsets of the total of around 10 million mobile phones sold in the country.
The Maharashtra state government had hiked VAT (a tax levied on sales of good or services) from the earlier 4 per cent to 12.5 per cent, effective July 1, 2009. The state had made proposals in its budget on June 8, and despite industry pleas issued a notification on July 29 announcing the hike. At present, Maharashtra is the only state to levy a 12.5 per cent VAT, while Madhya Pradesh has proposed a similar hike.
ICA estimates the total VAT collection would around Rs 33.50 crore, as against an expected Rs 168 crore for the current financial year. The Rs 134.50 crore could be accounted to smuggling and other grey market activities.
According Vipul Sabharwal, Nokia India Director (sales), the sales of entry-level handsets have become extremely difficult as now the price points are high.
“This would also impact the rural forays of the government, as the price hike will be the biggest dampener. The present average selling price of a handset is Rs 2,300, which means that mostly low-priced handsets are being sold in the country,” he added.