GST to bring down prices of smartphones and medical devices

Contrary to the claims made by handset manufacturers, prices of smartphones and medical devices would come down with the goods and services tax (GST) rates set lower at 12 per cent against the current tax rates of 13.5 per cent and 13 per cent, respectively, according to government estimates.

The clarifications came in a release issued by the government as part of its efforts to ensure that the benefits of lower GST on products - ranging from smartphones to medical devices and cement - are passed on to consumers.

Presenting a detailed analysis of the effect of GST rates on goods and services, the finance ministry has asked producers to ensure that the benefit of rate reduction be passed on to the consumers and warned of invoking the anti-profiteering clause if the gains were not passed on from July, the scheduled date for GST launch.

The finance ministry' warning comes after some manufacturers, such as mobile phone and white goods companies, suggested that prices may rise once GST kicks in although the government has repeatedly said that in most cases, not only is the burden lower but the advantage of input tax credit - or gains from refunds for taxes paid - will ensure that prices come down. In addition, several cesses and surcharges are going away.

In case of smartphones, the government countered the claim of handset manufacturers saying that smartphones currently attract 2 per cent central excise duty, while VAT rates varied from state to state and was in the 5-15 per cent range. "Weighted average VAT rate on smartphones works out to about 12 per cent. Thus, the present total tax incidence on smart phones works out to more than 13.5 per cent. As against this, the proposed GST rate for smart phones is 12 per cent," an official statement said.

Further, medical devices, including surgical instruments, will see a lower tax burden with the GST rate pegged at 12 per cent, instead of the current incidence of over 13 per cent, which includes 6 per cent central excise duty and 5 per cent VAT. In addition, companies pay central sales tax, octroi and entry tax, among others.

A similar analysis for services is expected in the coming days as several businesses such as telecom and insurance have argued that there will be an increase in tax burden. The government, however, says that the incidence of tax will come down due to input tax credit for goods being made available to service providers.

The government also said there will be lower tax burden on medicaments, including Ayurvedic, Unani, Siddha and Homoepathic medicines.

In general, these products attract 6 per cent central excise duty and 5 per cent VAT apart from CST, octroi and entry tax. All these add up to a combined levy of around 13 per cent, while GST has been fixed at 12 per cent.

Cement currently attracts central excise duty of 12.5 per cent and a specific levy of Rs125 per metric tonne in addition to VAT of 14.5 per cent. These levies add up to more than 29 per cent and with other taxes, the incidence is over 31 per cent, compared to the GST rate of 28 per cent.

Also, the government said, goods like `puja samagri', including havan samagri, will be under the 'nil' tax category under GST, although the exact formulation is yet to be worked out.