Indian Cellular Association, the apex body of the mobile industry, on Monday said that the proposed hike in VAT rates to 12.5 per cent on handsets in Maharashtra could destroy the ethical retail trade and encourage the grey market.
"The proposed hike in VAT rates will destroy the ethical retail trade and encourage the grey market. The state exchequer is not going to be financially benefited either," ICA's national president Pankaj Mohindroo said.
Maharashtra Government in its latest budget has proposed to increase VAT on mobile handsets to 12.5 per cent from four per cent now.
"Overall, the state stands to loose at least 473.6 crore in the next three years, if the proposed 12.5 per cent VAT is implemented," Mohindroo said.
"However, I strongly feel that the state Government is not going to implement the proposal," he said, adding that a representative of handset makers and retailers would meet the chief minister on Tuesday in Mumbai to bring the issue to his
Mohindroo said that a common man starts with a sub entry-level phone of Rs 1,500. In the new dispensation of 12.5 percent VAT, he has to pay Rs 127 extra on account of the 8.5 percent VAT hike.
"Our experience shows that Rs 30 is the point at which the consumer turns away from the official market to the grey market. He is not ready to pay a tax higher than four per cent or so on a mobile phone," Mohindroo said.
The grey market, he said, would also hurt the consumer, especially the weaker sections as they would be exposing themselves to spurious products and dangerous batteries.
"The consumer will not get after sales services and warranty from the manufacturer on account of the purchase in the parallel market. In the event, the consumer loses the gains from tax evasion," Mohindroo added.