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Cell firms seek steps to curb grey market

By Shanthi Kannan

CHENNAI DEC. 19. The Indian Cellular Association (ICA) is convinced that the Government will incur a revenue loss of about Rs. 5,390 crores by 2006 if appropriate measures are not taken to curb the grey market by rationalising the duty on import of mobile handsets.

According to the ICA President, Pankaj Mohindaoo, over 70 per cent of the handsets sold was routed through the grey market. In fact, based on the number of subscribers added this year, the total market was valued at Rs. 1,980 crores.

Mr. Pankaj said the mobile handsets in the grey market were either smuggled into the country or the second-hand ones refurbished and passed off as brand new instruments. Legal sales of handsets, however, account for just Rs. 495 crores (at an average value of Rs. 4,500 per handset).

In addition, sales tax — 12 per cent in some States such as Kerala, Bihar, Assam and 20 per cent in Tamil Nadu, and additional octroi in Gujarat, Punjab and Maharashtra — contributes to making the grey market handsets attractive.

The ICA is reportedly drawing up a detailed note on mobile handset industry to be presented to the Government to effect correctives. The ICA President wanted removal of duties and levies on mobile handsets to facilitate a crack down on the grey market network.

Mr. Pankaj was confident that the prices of the handsets would come down if the duty structure was brought down. Today consumers paid about 15-35 per cent extra (depending on sales tax) for a legal phone as compared to a smuggled handset. The differential was largely accounted for by a basic customs duty (BCD) of 10 per cent, a special additional duty of 4 per cent; State sales tax ranging from 4 per cent to 20 per cent and octroi tax ranging from 3 per cent to 5.5 per cent.

The President said the mobile handset industry had been growing at a rapid pace. Sales of legal handsets had grown by over 150 per cent this year. This was attributed to the reduction in prices following duty cuts in the budget 2002-03 as also due to rationalisation of sales tax in major States. The cellular subscriber base grew 79 per cent last year — from 54.7 lakh subscribers at the close of 2001 calendar year to over 80 lakhs at the end of September 2002.

Mr. Pankaj said the Union Government should remove the revenue sharing clause for telecom operators on sale of handsets along with packaged airtime. This would encourage higher growth of subscribers and enable the telecom operators buy handsets and subsidise their sale with airtime to customers.

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