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Mobile phones and tablets may become cheaper soon if states accept the telecom department’s demand to define these items as goods of special importance under the Central Sales Tax (CST) Act.
The Empowered Committee (EC) of State finance Ministers will consider bringing mobile phones and tablets under the declared goods category in its next meeting at Mussoorie on May 10-11.
A lower duty on mobile phones is a long standing demand of the industry. Recently, communications minister Kapil Sibal wrote to the Committee to consider the proposal. A presentation will now be made by industry associations and representatives from the Department of Telecom before EC on May 11.
If the proposal goes through, states will not be able to tax these electronic items at a rate higher than 5%. Currently, the tax rate varies from state to state, with some state governments, such as Maharashtra, West Bengal, Gujarat, Tamil Nadu, Madhya Pradesh levying tax on mobile phones at the highest rate of 12.5% plus a surcharge. Reduction is the tax rate from 12.5% to 5% would give a saving of Rs 750 on a mobile phone of Rs 10,000.
In case of tablets, the situation is more complex as the classification of the product is not clear. Some states consider it a mobile phone whereas others classify it as an information technology product, which are taxed lower at 5%.
Industry associations have already met EC Chairman and Bihar’s Deputy Chief Minister Sushil Modi and said he sounded positive but some states are still opposed to the proposed move. At the Mussoorie meet, the effort will be to convince those states that these goods are important for country’s development just like other special importance goods such as cereals, cotton, crude oil, sugar, textiles, jute, iron and steel, tobacco products, oil seeds, pulses and LPG.
Indian Cellular Association (ICA) President Pankaj Mohindroo said if the proposal goes through it would help put a check on the grey market as many Chinese handsets sold there don’t pay any VAT. He said poor states are in favour of a lower tax as it would take mobile telephony to every nook and corner.
National Policy on Electronics has already approved mobile phones and other electronic products used for data communication as goods of special importance under the CST Act. CST is a tax on inter-state movement of goods imposed by the Centre but collected by states.
Bringing more goods under ‘declared’ category deprives states of higher revenues and in the last EC meeting in Bhubaneswar Modi had asked the Centre to abolish the provision from the law.
Mohindroo, however, said the National Policy on Electronics was made after wide consultation and “because of the spirit of federalism there is no wish to impose anything on the states”.
Article 286(3)(a) of the Constitution authorities the Centre to decale some goods as of special importance and impose restrictions with regard to power of states to levy tax.
