Akhilesh Shukla on Voice&Data, June 15, 2009 Published June 16, 2009
The proposed hike of VAT to 12.5% on mobile handsets in Maharashtra could hit the organised trade in the Maharastra. Organised trade, which is already hit by higher property rates, shirking margins and high trained employee cost and other operational costs, would loose customer to the unorganised trade.
The decision, on the other hand, will force the unorganised retail industry to switch trade in grey to survive. The sale of grey handsets, especially of higher end model will become more profitable for them and help them to maintain footfalls, as well.
In case the decision came into force, the price of handset costing Rs 20,000 will go by Rs 25,000. Buyers will prefer to buy the phone from grey market, as the difference would be phenomenal.
The organised trade contributes to 13% of the over all handset retail market in India. However, as per number of outlets they occupy 3% of the pie. The handset retail market is slowly and gradually moving towards organised trade. But the state government’s decision will hamper the shift.
Maharastra and Mumbai is one of the biggest handset retail market in the country commanding more than 13% of the market share in the country. As per the current market estimates around 120 mn handsets are sold in the country every year, Of which, 15.6 mn are sold in Maharastra alone.
As per Indian Cellular Association the state government, which is eying a huge revenue from VAT on handset, will loose money as well. ICA says that 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 because of increased sale in the grey market.
The pioneer in mobile handset retail in India The Mobile Store is headquartered in Mumbai and have a strong presence in the region. Besides, HotSpot, another market leader, have a strong presence in the country.
See also: VAT hike on handsets may bring in less tax for state at http://telcobizpedia.wordpress.com/2009/06/08/vat-hike-on-ha…-tax-for-state/