The Central government is all set to roll out the game-changing Goods and Service Tax (GST) on July 1 under four major tax slabs – 5, 12, 18 and 28 percent. Mobile phones will fall under the 12 percent slab while other consumer electronic goods including TVs, refrigerators, air-conditioners, gaming consoles and household appliances are likely to get expensive as they fall under the 28 percent slab.
GST is being implemented with the idea of simplifying the taxation concept by replacing state government imposed local or indirect taxes. Such a move is likely to bring down prices of some categories while pushing up the prices of those commodities that were made cheaper under 'Make in India' scheme.
Mobile Phones to become expensive
Mobile phones, in general, are expected to become expensive by at least 4-5 percent in the coming days, especially the ones manufactured in India. Once the GST is initiated on July 1, the government will no longer be able to pass on the benefits to the locally made goods as these items are currently being sold at lower tax rates with several tax exemptions.
Locally made iPhones to be cheaper, but imported ones will be more expensive
All imported phones and their components, however, are expected to cost the same or slightly more post GST, including the iPhones. All Apple iPhones are expected to fall into the 18 percent GST slab as they have been classified under the luxury category.
In other words, imported mobile phones in India are being levied a basic customs duty at the rate of 17 to 27 percent while the GST impact will bring it down to 12 percent. You will be saving a flat 10 to 15 percent on the import duties.
Consequently, buying an imported iPhone after July 1 could be slightly expensive, but a locally assembled iPhone will be cheaper than its current retail price.
GST impact on e-commerce outlets
GST will have a massive impact on the prices of goods being sold through local e-commerce players like Amazon, Flipkart, Snapdeal, Shopclues and others as these outlets have so far been leveraging on lower VAT rates in states like Karnataka.
With the implementation of centralised GST across India, the state imposed VATs will be taken off. Hence, the state government will not be able to pass on these benefits to e-commerce outlets.
Despite the GST effect, if Apple starts manufacturing the iPhones in India then we are likely to see some aggressive pricing strategy from the Cupertino company in order to compete with the budget-pricing strategy of domestic players.
PM Modi's drive for 'Digital India' and 'Make in India' products could actually make budget smartphones cheaper in the whole run.
This theory is further strengthened by the fact that local domestic players are urging the Indian government to create a level playing field for them to co-exist with imported international brands.
As a result, a substantial duty differential is likely to be imposed between locally made and imported mobile phones.
Thereby, the iPhone SE price is expected to come down by up to 12 percent, if Apple succeeds in making the iPhones in India with 30 percent locally sourced components in line with PM Narendra Modi's directives.
GST impact on consumer electronic goods
TVs, computers, air-conditioners, refrigerators and other consumer electronic goods will attract around 4 to 5 percent more tax from July 1. The GST implementation will bump up the current tax rate which is around 23 percent to the proposed 28 percent.
However, there is some hope of price hike on consumer electronic goods being neutralised during the festive season.
"With the 4-5% price hike, there will be an impact on sales in July-August but we expect the effect will get neutralised by the festive season and demand will be back," told Panasonic India president Manish Sharma to Economic Times.
Currently, the consumer goods are attracting VAT in the range of 12.5 percent to 14.5 percent with an additional excise duty of 8.6 percent including the cess charges.
The consumer electronics industry is reportedly lobbying for the 18 percent tax slab under GST. If the government indeed agrees to bring down the GST rates for consumer electronics then it could actually make TVs, computers, air-conditioners, refrigerators and other items cheaper by around 4 to 5 percent.