VAT Hike Hits Mobile Phone Sales

by CXOtoday Staff    Jul 14, 2009

Handset sales fell 75% in Maharashtra during the first ten days of July as compared to the same period in June. This follows the increase in value-added tax (VAT) from 4% to 12.5%, effective July 1.

Following the hike in VAT, the Indian Cellular Association (ICA) has now revised its estimates for VAT collections in the state from the earlier Rs 168 crore for the year to around Rs 33.5 crore.

According to Pankaj Mohindroo, president of ICA, this huge fall in collections takes into account smuggling and the grey market business, which procure their supplies from zero-duty places like Dubai. "With the increase in VAT, customers will now turn to the grey market," he said 

Apart from the VAT, Maharashtra levies octroi at 5.5% and customs duty of 5% on imported handsets. According to an ICA report, VAT collections in the state fell 25%, while octroi fell by 75% during the first 10 days of July.
Interestingly, the hike in VAT has come at a time when the state is planning to penetrate into rural Maharashtra. "The price hike will be the biggest dampener to the state s rural telecom plans," said Mohindroo.

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