The consumer electronics industry is likely to take a hit of close to Rs 1,000 crore with the increase in value-added tax (VAT) in some states. Gujarat, Uttar Pradesh, Kerala and Rajasthan have increased the VAT by 1.0 to 2.5 per cent in a move that would make electronic goods costlier for buyers.
“These four states contribute over 30 per cent of the total industry’s revenue worth Rs 30,000 crore and we expect this to drop by 10 per cent due to the price increase,” said Suresh Khanna, general secretary at industry body Consumer Electronics and Appliances Manufacturers’ Association.
At a VAT rate of 12.5 per cent, the sector generates revenues worth Rs 1,250 crore to the respective state governments and an increase means more money in the hands of the government. “However, with sales expected to drop, the net revenue gain for the governments will be marginal,” Khanna said.
Industry executives feel this increase could result in trade diversion and malpractices.
“State governments should stick to a uniform tax as a variation creates dissonance in the market and impact customer prices,” said Ravinder Zutshi, deputy managing director at Samsung Electronics India.
Ironically, the sector had been demanding for a parity with Information Technology hardware like computers and printers that attract 4 per cent VAT.
“VAT increase is passed on to consumers although the price difference may not be huge and business may not get a major impact. Buyers may delay purchase of big ticket items,” said Pranay Dabhai, chief operating officer of Haier Electronics.