People aspiring to buy expensive smartphones like iPhones, Galaxy SIII or even mid-level Nokia Asha will have to shell out more now as the Budget for 2013-14 raised excise duty to 6 percent on handsets priced above Rs 2,000.
The proposed hike in duty would increase prices of handsets in a range of Rs 120 to Rs 3,000 (for a device costing Rs 50,000). Mobile phones at present attract 1 percent excise duty.
Finance Minister P Chidambaram in Budget speech said, "I do not propose to change that in the case of low-priced mobile phones. However, on mobile phones priced at more than Rs 2,000, I propose to raise the duty to six per cent."
"About 70 per cent of imported mobile phones and about 60 percent of domestically manufactured mobile phones are priced at Rs 2,000 or below," the Minister said.
Reacting to the proposal, Indian Cellular Association (ICA) President Pankaj Mohindroo said the move would encourage grey market.
"This is a time when people are moving to smartphones and this is not the right time for such a move. This will only encourage grey market, which is still a significant in size," Mahindroo said adding that ICA will approach the Finance Ministry for reversal of this hike.
Nokia India VP and Managing Director P Balaji said, "It is likely to increase sale of grey, unbranded sub-standard handsets which is not good for the consumer, industry and exchequer. We would request the FM to roll back excise duty increase as mobile phones are the primary mode of access to information and services."
A total of 102.43 million mobile phones were shipped during January-June 2012, according to CyberMedia Research. According to analysts, grey market or unauthorised sales constitutes 10-15 percent of the sales volumes.
"The increase in the excise duty on mobile phones will not have a positive impact on the mobile industry and should lead to an increase in prices for end-consumers," Samsung Vice President (Mobile) Asim Warsi said.
S Mobility CEO (Devices) T M Ramakrishnan was of the opinion that though the duty hike will not affect demand, but pressure on margins of the companies would increase.
"This decision will also impact the industry's focus on making smartphones more affordable. Rural areas might get that much more difficult for smartphones to penetrate," he added.
Sharing similar concerns, Micromax CEO Deepak Mehrotra said the move will also impact mobile Internet penetration. A large number of people are today accessing Internet through their phones and this may be impacted by the additional taxes (higher in case of smartphones), he added. Another domestic handset maker, Lava said all players would have to increase prices in the short term.
"The mobile phone segment is very competitive. But we have no option but to increase prices. It is a hard Budget for the mobile phone segment," Lava Founder and Director S N Rai said.