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“This
is great news for the industry. We made a detailed
presentation to finance minister Asim Dasgupta today where
we highlighted the crippling effect the current decision
would have on the mobile phone industry in Bengal,” said
Pankaj Mohindroo, president of the Indian Cellular
Association.
“We
have been told that the ministry has agreed to keep the
decision in abeyance for now,” he added.
The
new VAT regime was scheduled to come into effect from
September 8.
According
to industry observers, the increase in VAT would have
seriously impacted mobile handset sales in Bengal.
According
to the Indian Cellular Association, while the industry
hoped to sell 60 lakh units in the state this year, the
tax hike could have brought down sales to five lakh units,
reducing the size of the organised handset market to a
meagre Rs 125 crore from an estimated Rs 1,500 crore.
The
entry level segment would have been the worst hit because
of the VAT increase.
The
new levy would have made mobile phones priced at Rs 1,500
costlier by Rs 127, while handsets priced at Rs 2,000
would have cost Rs 170 more. Handsets priced between Rs
4,300 and Rs 8,300 would have been dearer by Rs 365-705.
According
to experts, the move to hike VAT would have led to a
resurgence of the grey market with cheaper phones being
smuggled from neighbouring countries.
Thus
the Bengal government’s bid to raise more revenues by
increasing VAT rate could have backfired.
The
4 per cent levy fetched the state government Rs 65 crore
in 2007-08, up from Rs 1.5 crore in 2001-02.
The
grey market, which comprises 10 per cent of the total
mobile market in the state, is shrinking.
An
increase in the levy would have allowed the grey market to
proliferate, leading to a revenue loss (roughly Rs 172
crore) to the Bengal government.
The
increase in VAT would have also had a negative impact on
employment opportunities.
“There
are about 90,000 to one lakh people employed in in retail
and distribution chains in the suburbs and other
semi-urban centres. The growth of the grey market would
have halved the number to 45,000,” said Mohindroo.
In
most Southeast Asian countries, except China, VAT along
with customs duty are under 10 per cent.
Source
: Calcutta Telegraph - Calcutta, India, dated 03/09/2008
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