Govt losing Rs 2,400 cr from rampant smuggling of high-end phones
At a time when the government has been squeezed of revenue, the mobile handsets industry has pointed out that excessive duties of 20 per cent on high-end phones priced at Rs 50,000 and above is causing a loss of Rs 2,400 crore on an annual basis to the government.
The industry, in a representation to Finance Minister Nirmala Sitharaman, Commerce & Industry Minister Piyush Goyal, and Electronics & IT Minister Ravi Shankar Prasad, has stated that there is an immediate need to rationalise duties down to Rs 4,000 per phone beyond a landed price of Rs 20,000 for imported phones.
Phones in this range sell for nearly double the price in the open market, after adding duties, GST and margins as well as marketing, distribution and inventory holding costs for the entire supply chain, which includes brand owners, manufacturers, national and regional distributors and retailers.
In a detailed letter, the leading industry association for mobile handset manufacturers - India Cellular & Electronics Association (ICEA) - whose members include Oppo, Vivo,
Flextronics, Foxconn and Apple - has argued that a change to a flat rate would wipe out the losses to the exchequer and result in an additional earning of Rs 1,000 crore on account of GST collection.
The letter further states that mobile phones imports constituted 78 per cent of India's total market requirement till the year 2014-15. In the year 2018-19, it fell to between 5-6 per cent and is expected to fall further to 4-5 per cent in 2019-20. This was a result of the rapid indigenisation programme. In revenue terms, however, this makes a significant dent on GST collections.
Imposition of 20 per cent Basic Customs Duty (BCD) on high-end imported handsets whose market price is above Rs 50,000 leads to large-scale smuggling since the arbitrage ranges between Rs 25,000-30,000 per phone. The smuggling occurs mostly from Dubai, Singapore, Hong Kong and the US which have zero tax trading or a total duty of maximum 9 per cent, as against India's 32 per cent - 20 per cent BCD and 12 per cent GST.
The association argued against the "one-size-fits-all" 20 per cent customs duty regime. It has further represented that the original objectives of imposing duties across all lines of phones has worked well, and most global companies have begun to manufacture their latest and high-end phones in India. This includes iPhone X series by Apple and the Samsung Galaxy range.
In effect, according to the industry, rationalisation of customs duties will not impact local manufacturing which has begun to shift. ICEA has also pointed out that the loss of sales due to grey market amounts to approximately Rs 8,000 crore which adversely impacts nearly 10,000 retailers who sell high-end phones.
Since over 50 per cent of high-end phones are in the grey market, the price difference destabilises the retailer business who are unable to suffer sudden shifts in demand during summer and winter holidays when large-scale smuggling occurs.
According to ICEA, the loss of customs duties was nearly Rs 1,400 crore and GST an additional Rs 1,000 crore only on account of high-end phones. ICEA has not sought any reduction in duties for phones whose landed price is below Rs 20,000, since these constitute nearly 95 per cent of the total volumes.