The Maharashtra government has hiked the value-added tax (VAT) on mobile cellular handsets by a sharp 8.5 per cent, from 4 per cent to 12.5 per cent, amid a howl of protests from mobile phone retailers. The move could also spark similar action from other states.
Retailers are unhappy with the state government's decision, saying their margins are just 1 per cent to 2 per cent, leaving no room for price cuts. Some retail chains, including Nokia and The Mobile Store outlets, downed shutters from 2 pm to 5 pm; and the protest is expected to spread wider during the day today.
Retailers say that the extra VAT - even as the tax in other states stands at 4 per cent - will result in a thriving gray market in the state, as it would be easy for dealers as well as individual buyers to bring in cheaper phones from other states.
Retailers and manufacturers like Nokia are expecting a huge decline of about 40-80 per cent in sales after the new tax. Maharashtra, which sells about 1 million handsets per month. Some retailers have estimated the drop from Rs300 crore of revenues down to Rs30 crore.
Indian Cellular Association (ICA), the industry body for handset players, is writing a letter to Maharashtra chief minister Ashok Chavan and other senior officials requesting that VAT be restored to 4 per cent.
Already infamous for its gouging retail tax regime on virtually all goods, Maharashtra is the only state to have increased VAT on cellphones to 12.5 per cent.