Hike in service tax to help domestic mobile handset manufacturers

Taking its Make in India initiative a step forward, Finance Minister Arun Jaitley hiked service tax and import duty on handsets. Experts believe that this will certainly give a boost to domestic handset manufacturing but burden the consumer as well.

“Customers will have to pay more for telecom services with the increase in service tax and import duty on handsets. Today, over 70 per cent of mobile handsets are imported and with the rate of duty more than doubling,  it would either force manufacturing in India or make the mobiles more expensive.”

 This is in line with Make In India initiative, though it may not be really aligned to the Digital India Vision of the Government,” according to Prashant Singhal, Global Telecommunications Leader, Ernst & Young.

According to telecom industry officials, if the government has hiked service tax, it is imperative that it will be passed on to consumers. The industry was going through a bad phase and just started a recovery. This move could further bleed the industry, the officials feel.

Rajan S Mathew, Director General, Cellular Operators Association of India (COAI), however, believes that a tariff hike is unlikely due to the service tax hike.
“The service tax impacts consumers and citizens as it will make things more expensive. However, the move is unlikely to have an impact on tariffs as far as telecom services are concerned,” Rajan told Deccan Herald.

More tax to be paid

Finance Minister Arun Jaitley, in his Budget 2015 presentation on Saturday, mentioned that the Service Tax will be increased from 12 per cent to 14 per cent.
Meanwhile the government has also envisaged enabling a provision to levy 2 per cent cess with regard to the Swachh Bharat Abhiyan.

According to Deloitte Touche Tohmatsu India Senior Director Krupa Venkatesh, “The Swachh Bharat Abhiyan cess of 2 per cent seems to suggest that it will be 2 per cent of the total value, other than the Service Tax. It is an indication that we are going at a higher rate of GST and this move is a precursor.”

This means that with every purchase requiring a Service Tax of 14 per cent being paid, an additional cess of 2 per cent is likely to result in 16 per cent of total tax paid.  
Asked how it would affect people, Venkatesh said, “If you look at it in terms of a steady rate of change, it may not affect common people. But retailers and FMCG players, among others are likely to be affected, owing to high rental expenses and so on, which in turn would indirectly impact the common man.”
DH News Service