Nokia on VAT increase on mobile phones in Maharashtra

INDIA: Statement from Nokia increase in VAT on mobile cellular handsets in Maharashtra.

According to Vipul Sabharwal, Director Sales, Nokia India: "The move by the Maharashtra government to hike the VAT on mobile cellular handsets from 4 percent to 12.5 percent, is not just very distressing for the industry, but is also a very shortsighted move. The mobile industry is a fast growing segment, which contributes significantly to the GDP of the nation as well. This is a self defeating move, bound to reverse the growth of the industry, thereby impacting the socio-economic development of the state as well.

According to industry estimates, the sales of mobile handsets in the state of Maharashtra at present stands at a million units per month today, which translates into a turnover of Rs. 300 crore per month, at an average selling price of $60 (@ Rs. 50 = US$1).

With the proposed hike of 8.5 percent the Govt. Of Maharashtra expects its VAT revenues to increase to Rs. 36 crore per month from the current monthly revenues of Rs. 12 crore per month.

However, the telecom industry believes that an 8.5 percent hike, or a total VAT of 12.5 percent will lead to a massive drop in legal sales, with sales falling to Rs. 30 crore per month from the current Rs. 300 crore. This means that the VAT revenue collections will, in turn, fall to around Rs. 4 crore a month, thus leading to a loss of Rs. 8-10 crore per month or approximately Rs. 100 crore annually to the State Government exchequer.

Additionally, revenue from Octroi, which currently stands at Rs. 9 crore, is expected to be negligent on a monthly sales turnover of Rs. 30 crore.

This is because such a regressive move will lead to a resurgence of the grey market, with handsets coming in from both neighboring states as well as from international markets such as Singapore and Dubai.

This will in turn affect business on the organized trade as well, impacting employment and encouraging unethical practices –- all in all, a completely unfortunate and lose-lose situation for all stakeholders involved starting with consumers.”