India smartphone market will be impacted by a new rise on taxes

The global smartphone shipment is about to experience one of its major declines due to the Coronavirus pandemic that is advancing through several countries. In light of this situation, India’s Goods and Services Tax (GST) Council is hiking the tax payable on mobile phones from 12% to 18%. The new development was announced by the GST Council during a meeting in New Delhi today. India’s smartphones will probably become costlier in the coming months due to this move. The India smartphone market figures as the world’s third-largest market.

The council reportedly skipped the proposal to also increase the rates of fertilizers and footwear. It cites the slumping economy and the impact that will be caused by COVID-19. However, the Council states that the tax increase on mobile phones was necessary. After all, the smartphone business is one of the sectors that had less impact from the prevailing economic slowdown.

India’s Cellular and Electronics Association (ICEA) had earlier appealed against increasing the tax on mobile phones. According to the industry representatives, the increase in GST would be detrimental to consumer sentiment. Moreover, it may harm the local manufacturing of smartphones. Even the country’s mobile retailers association is appealing against the increased tax. According to them, this will impact their already low margin.

IDC India’s Navkendar Singh, Research Director, Client Devices and IPDS believe that the decision will affect getting more persons coming in the smartphone segment.

”Despite being the fastest-growing smartphone market in the world, India still has a long way to go. The country has an estimated penetration of around 400 million people out of 1.6 billion that can access smartphones in the country.“Considering the current supply and projected demand scenario in the next couple of quarters, brands are not in any position to absorb this hike. They will be forced to pass it onto the consumer, which will further increase the replacement cycle (which has been a major engine of growth in the market for the past couple of years),” says Singh.