Impact of GST on Smartphones and Consumer Electronics Industry

Impact of GST on Smartphones and Consumer Electronics Industry

With July 1 deadline for rollout of GST approaching closer, it has already been hailed by many as a historic step in Indian Taxation System. The primary objective behind GST is to have a simple and a unified tax structure, thus creating a level playing field for business enterprises. GST will replace the current set of indirect taxes and is also tipped to ease the process of taxation.

Yet, there are still some unanswered questions, regarding how GST will impact the prices of smartphones and some of the other consumer electronics items. The more important question is that will the customers stand to gain post the implementation of GST.

Many industry research firms had laid down their speculations emphasising on the Government’s Make in India and Digital India initiatives. A majority of them believe that, in order to achieve the objectives of Digital India, smartphones are the key, especially when the Government is leaving no stone unturned in promoting digital currency and the whole idea of mobile wallets. Some of the government initiatives for driving mobile banking like Bharat QR, USSD based mobile banking and other UPI based applications have been instrumental in digitalising the economy to a great extent.

As per a recent meeting by the GST council on 18th May, 2017; GST slab for smartphones have been kept at 12%. Some of the industry experts also expect the Government to offer tax refunds to OEMs in order to make sure that Make in India remains a success.

GST on domestic appliances and other electrical machinery

With the picture about the GST slabs for different products getting clearer, handlooms that are used in the handicrafts industry is the only machinery that will not be charged any tax under the GST regime. A vast majority of electrical machinery will be taxable at a similar rate to the rate declared by the GST council. It is also expected that the prices under GST are going to stay more or less the same for the end consumer. Manufacturers that are using electrical machinery will stand to gain from the availability of input tax credit on services that are used as it is not available under the current taxation structure.

In a recent meeting of the GST council, the rates of each electronic appliance such as washing machine, refrigerator, vacuum cleaner etc. has been fixed at a slab of 28%. Further, it is also expected that an increase in the tax burden by 2-3% under GST regime would be eventually passed on to the final customer. The tax rate of 28% on domestic appliances also showcases that that these electronic appliances are still considered as luxury items by the Government of India.

Market leaders of household electronic appliances such as Godrej, Samsung, Voltas etc. may not be able to pass on the benefit of GST to the eventual customer because of the high tax rate of 28%. Certain clarifications regarding the treatment of tax exemptions under the current regime will be provided by the respective States in the coming days. Manufacturers of these appliances operating in the Mumbai region would be relieved by the introduction of GST as they are charged an additional octroi of 5% other than the average tax of 25-26% under the current regime.

Let us highlight some of the GST slabs for electronic appliances through a table:

Classification 5% 12% 18% 28%
Electrical machinery and equipment, television image and sound recorders and reproducers and accessories of these articles 1) Renewable energy devices and spare parts
a) Solar power based devices
b) Bio-gas plant
c) Wind-mills and wind operated electricity generator
d) Solar plant
e) Waste to energy plants
Telephones for cellular networks and other wireless networks and parts for their manufacture 1) Electric motors and generators
2) Electric generating sets
3) Electromagnets and permanent magnets
1) Primary cells and primary batteries
2) Vacuum cleaners
3) Refrigerators
4) Washing machines
5) Air conditioners
6) Shavers, hair clippers and hair removing appliances
7) Portable electric lamps

With focused efforts towards a digital economy, the prices of smartphones are more or less expected to be the same with the proposed slab of 12%. Manufacturers and assemblers of smartphones and tablets also stand to be in good stead once GST takes over from the current regime.

The consumer electronics and domestic appliances industry is expected to witness a downward spiral with expected inflation and rise in tax rate on the cards. This would certainly lower down the demand of television, washing machine etc. in the days to come. However, the price tag on commercial electrical machinery is expected to remain neutral.

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