CHENNAI:The slash in Value Added Tax (VAT) on mobiles from 14.5% to 5% in the Tamil Nadu budget, while good news for original equipment manufacturers (OEMs) and the State, is unlikely to be of direct benefit to buyers. According to retailers, prices of mobiles on the retail market is unlikely to reduce at this juncture. Senior government officials, however, stated that the VAT cut would definitely be passed on to the customer.
The reason why a lower VAT was unlikely to lower prices is because of market economics. Even while most of TN’s neighbouring States had set VAT levies at 5 or 5.5% and TN had a VAT of 14.5%, the prices of most popular mobile brands remained uniform in all states - OEMs had borne most of the excess cost of VAT instead of passing it on to the customer.
“So now that VAT has been reduced, OEMs will increase the base price of mobiles to levels at which they sell in other States. There is not likely to be any direct benefit to the customer immediately,” said Satish Babu, managing director, Univercell.
The slash in VAT would have several other far reaching effects. For one thing, according to industry sources, it would choke interstate smuggling that happened because of the imbalance in base price of mobiles.
Besides cutting down smuggling, the measure will make the State a lot more attractive to e-tailers like Flipkart, Amazon, and SnapDeal that stayed away so far from setting up warehouses and dealerships in because of high VAT. A significant development since nearly 20% of all mobile sales in TN is through e-commerce.
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