Smartphones prices across brands such as Samsung, Xiaomi, Oppo, Gionee, Intex and Lava won’t increase because of GST, as these companies plan to absorb the impact on cost from the new tax system that comes into effect over the weekend.
Retailers, though, have stopped purchasing stock from brands and some distributors have closed warehouses for a week, till the time process for invoicing and reclaiming credit on duties paid on stock and other aspects are clarified by brands, said industry insiders.
“There will be no impact on pricing,” said Gionee managing director Arvind Vohra. “Currently there is a differential tax in the market — in some markets you will give (tax) while in rest you will get it,” he said, indicating that in areas where GST will lead to higher taxes, companies like Gionee will absorb it.
“This is just to ease the purchase of our products for all our customers,” said Gaurav Nigam, senior VP, head of product at Lava International.
Sources said Samsung was also unlikely to increase prices of its existing models. However pricing for new models would factor in the 12% GST which the government fixed last month.
Samsung didn’t officially comment.
Intex Technologies’ chief financial officer Rajeev Jain, though, said prices for new models may go up, “but that’s a model-specific strategy”. Micromax declined to comment.
According to industry data, 29 out of 36 value added tax (VAT) jurisdictions in India, including 29 states and seven union territories, had a VAT rate on mobile phones of 5% along with a 1% excise duty. Thus, the total tax incidence is 6% currently in most parts of the country. In these states, GST — it subsumes all indirect taxes — at 12% will cause a 4-5% increase in cost. For states like Punjab, Rajasthan and Chandigarh that have rates of 8%-9%, the cost increase would be marginal.
However, in states like Gujarat, Madhya Pradesh and Maharashtra, prices may drop as they have VAT rates between 12.5% and 15%, according to a leading distributor, if brands were to pass on this cost benefit to consumers.
Analysts said brands can use the tax benefits in some states as incentives to distributors in July, who are now refraining from picking up stock for want of clarity on the processes and taxes they need to give and credit they will receive under GST.
“Brands can offer different incentives like cash back on a certain target of sales for the month, extend the credit period for distributors or even buy back the unsold stock, which can also depend on the state and the brand,” said Tarun Pathak, analyst at Counterpoint Research.