India has been an attractive marketplace for prominent Smartphone makers like Samsung, Xiaomi, and Micromax. Now, the GST rates shall be attracting these companies to locally produce phones in the country. All because the new taxation regime could counterbalance the cost benefits to manufacturing these phones in India.
From the past two years, India has attracted 40 global smartphone makers in the country, after making it sell phones to the billion strong mobile subscribers at an affordable price. The government has scaled investments in electronic manufacturing over Rs 1.24 lakh crore from Rs 11,000 crore two years ago.
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“There is a near 10% tax arbitrage for manufacturing mobile phones in India in the current tax regime. However, once GST is implemented, it will be different. We hope that the Government will try and protect the arbitrage in some manner,” said Prateek Jain, Partner and National Leader – Indirect Tax at PwC India.
“If the mobiles are manufactured in India there is an option of 1% duty without taking credit. Going forward the excise duty is going to be subsumed in the GST and the entire chain would be creditable so they cannot pick and do an exemption on the basis of domestic manufacturing,” said Bipin Sapra, Partner, Indirect Taxes, EY India.
“We are telling them to incentivise (domestic) manufacturing. Effectively we are talking about a differential of 8-9% only because of there is a single point tax which is excise duty and is not creditable. That’s a cost of manufacturing,” added Sapra.
“Instead of paying taxes at multiple levels of government including State and Central, there will be one tax allowing companies to save from the existing cumulative 25-30% tax burden and reduce it to 17-18% through a single unified tax and the advantage of logistics and processing costs thereof,” said K Krishnamoorthy, Chairman, India Electronics & Semiconductor Association.
