Govt may earn more than Rs 1,800 cr from mobile tax hike next fiscal

The government’s decision to hike the excise duty on phones priced above Rs 2,000 is going to fetch it a lot of money in the coming financial year. According to Business Standard, the government could earn somewhere between Rs 1,800 crore and Rs 2,700 crore in 2013-14 from mobile tax, depending upon the average cost of phones in the country.

Expensive phones will earn the government a lot of money

The mobile phone industry was enjoying an excise duty of only one percent before the 2013 budget was announced. Although the 5 percent hike seems reasonable, the Indian Cellular Association, which represents major handset manufacturers in the country, reveals that 200 million new mobile phones are sold in a year. Out of these, 70 percent (about 140 million devices) cost more than Rs 2,000. Note that there are some discrepancies regarding the average price of a mobile phone in the country, as the Indian Cellular Association says it is Rs 4,000, while Ernst & Young analysts think it is Rs 6,000.

However, Finance Minister P Chidambaram said 70 percent of imported mobile phones and about 60 percent of home-grown phones cost Rs 2,000 or less. A spokesperson from Ernst & Young said the hike would result in a three to four percent rise in retail prices and phone manufacturers may consider consuming the burden at the lower end, as the competition is very high. However, this burden is likely to be passed on to consumers at the higher end.

The new hike is likely to be implemented from the start of the new financial year. High-end phones, which currently cost around Rs 35,000 and Rs 45,000, will grow even more expensive. So if Rs 45,000 is exorbitant, how would you classify Rs 48,000 or more? That’s how much phones in this range are expected to cost once the hike comes into play.