High taxes on electronic and technology gadgets is killing this market, feel manufacturers and sellers of gadgets such as MP3 players and gaming consoles.
High taxes on these gadgets are driving up prices and as a result making them unviable for the consumer. PC makers on the other hand say that the 12 per cent excise duty on computers announced in last year's Budget should be removed to increase PC penetration in the country.
Taxes of upto 43 per cent that includes value added tax (VAT), octroi and countervailing duty on Apple's iPod, MP3 players from manufacturers like Samsung, and Xbox to the tune of 30 per cent is making users consider grey market options, they feel.
Similar is the case with Microsoft's gaming console Xbox, which attracts a duty of 37 per cent. By the time it reaches a normal buyer the duty comes to 50 per cent. According to industry watchers an Xbox starts retailing at $299 in the US and the same costs $444 in India.
Consumer electronics industry observers are of the opinion that this high rate of taxation is enabling a thriving grey market business. Consider Amol Dalvi who recently bought a 30 GB iPod from the grey market for Rs 12,000, which costs Rs 16,800 in an Apple store in India.
Similar is the case with other MP3 players and home entertainment-related products. "We are of the view that all consumer electronics products should be treated at par with IT products," says Ravinder Zutshi, Deputy Managing Director, Samsung India.
At present, the government levies a VAT of 12.5 per cent on entertainment products and 4 per cent on IT products. "The government classifies MP3 players and Xbox as home entertainment products, whereas the line between entertainment and IT products is blurring," says an analyst from a leading global research group who does not wish to be named.
Currently, excise duty charged on entertainment products is 16 per cent. "This should be slashed to 8 per cent," says Zutshi.
Another anomaly which the industry feels that needs urgent rectification is with respect to the variable VAT charges levied by state governments like Kerala who charge 20 per cent VAT as compared to 12.5 per cent charged by other states.
"There should be a uniform VAT tax structure all over India," says another CEO of a leading entertainment products company. "The existing CVD on imported components is lower than the excise duty charged for a finished product, which is passed on to the consumers," says an HP official.