'Grey sales of high-end phones causing revenue loss'

Sale of high-end mobile phones in the grey market is causing an estimated loss of Rs 2,500 crore annually to the exchequer, mobile industry body India Cellular and Electronics Association has claimed.

The industry body has suggested imposing a maximum customs duty of Rs 4,000 on handsets priced above Rs 20,000 to discourage duty evasion and wipe out the premium for illegal sales.

A basic customs duty (BCD) of 20 per cent is imposed on imported handsets at present.

"High-end phones that are getting sold in the grey market are estimated to cause a loss of Rs 2,500 crore annually on account of non-payment of basic customs duty (BCD) and also goods and services tax," India Cellular and Electronics Association (ICEA) Chairman Pankaj Mohindroo told PTI.

The industry body has requested Finance Minister Nirmala Sitharaman that the BCD of 20 per cent should continue but with a cap of Rs 4,000 on mobile phones priced above Rs 20,000, Mohindroo said.

The step will wipe out high margins on the illegal sale of high-end handsets and give a boost to legal imports, the ICEA has reasoned.

"Revenue impact on this would be an additional duty of Rs 700 crore of BCD approximately, which will get netted off because of the reduction in duty on the legal import. Hence, there will be no net gain or a net loss. The GST collection will, however, go up by over Rs 1,000 crore and the market environment will become much cleaner and regularised," Mohindroo said.

The ICEA said that recent budget was focussed on promoting electronics manufacturing in the country with a provision to write off capital expenditure for under section of 35 AD of Income Tax act.

"The entire mobile phone and its components manufacturing ecosystem should be brought under the finally notified scheme," he said.

The industry body has requested the government to bring down GST on mobile phone parts to 12 per cent from 18 per cent at present as it is creating an inverted duty structure in the sector.

The GST on mobile phones is 12 per cent while 18 per cent on parts such as back covers, batteries, headphones etc.

Mohindroo said that the inverted duty structure has led to a serious cash flow issue for manufacturers and is adversely impacting the competitiveness of locally-produced mobile phones.

India had two mobile phone factories in 2014 but now, it has 268 factories engaged in the manufacturing of mobile phones and their accessories. Prime Minister Narendra Modi during his 13th India-Japan annual summit had announced making India top mobile phone manufacturing destination.

Though there is a mechanism in GST to provide a refund of input tax credit (ITC), there is no way to provide a refund of accumulated ITC on the GST paid on capital goods and services in case of inverted structure.

"All new manufacturers are investing heavily on Capex (capital expenditure) and business promotion for creating a brand image. GST on such expense is an additional cost to the manufacturer, as they are not allowed refund of such accumulated credit," Mohindroo said.

The ICEA has urged the finance minister to reduce the timeframe for a refund of GST credits to at most a week. The industry body has also demanded input credit on manufacturing plant or shed, and canteen service, among others.