Cell handset industry close ranks to fight gray market

For the first time in the country cellular handset vendors have come together on a common platform to fight the menace of the gray market. Organized under the banner India Cellular Association, the body comprises manufacturers, distributors, dealers and retailers of mobile handsets.

With more than 75 percent of the mobile handsets sold in the country being in the gray market it was about time there was some concerted industry initiative on this front. With duty structure as high as 27 percent and with cumulative taxes bringing the total taxes to as high as 40 percent, the gray market is naturally an attractive option. So the association has appealed to the government to rationalize the tax structure from the current 27 percent to 5 percent. At the same time, the association has also appealed to have an uniform sales tax at 4 percent across the states.

Currently the cost structure is like this: basic is five percent, CVD is 16 percent and SAD is four percent. The Association proposes that the CVD and the SAD be brought down to zero while the basic duty can be retained. Sales tax in some states is as high as 17 percent. In some states like Delhi the sales tax was drastically raised from six percent last year to 12 percent this year. Some states like Andhra Pradesh, Karnataka, Maharastra and Rajasthan have lowered the sales tax to four percent.

If the government accedes to the demands of the industry, the effective price differential of handsets in the legal and gray market would be in the range of 10 percent allowing the share of the legal market to increase exponentially to 70 percent.

Globally the cumulative tax structure is lower than 10 percent. Under current levels of composite duty, the government stands to lose Rs 4,242 crore by 2005 as against an earning of Rs 3,240

crore.