Southern States - Tamil Nadu   

`Grey market thrives, thanks to ST on cellphone'

By V.S. Palaniappan

Coimbatore Sept. 7. The Tamil Nadu Government decision to hike sales tax from 12.5 to 20 per cent for cell phones has resulted a grey market flourishing.

Cellphones are available from authorised dealers who sell the product with warranty and bill and from customs duty-paid shops.

The decision would not only affect the authorised dealers but also encourage the grey market, bringing down revenue to the Government, which suddenly, citing a sub-clause in taxation guidelines, brought cellphones under imported electronics items, pointed out Vijaymohan, an authorised dealer.

This came as a rude shock to the cellular phone market, particularly in the `Rest of Tamil Nadu' circle at a time when it was poised for a manifold growth with the entry of two new operators.

The hotting up of competition resulted in service providers unleashing offers. Even by conservative estimates, the market was growing at 20 to 40 per cent, largely region specific, indicated statistics from the Cellular Operators Association of India (COAI).

The decision by the Telecom Regulatory Authority of India to seek a share in the revenue earned by cellular operators from sale of handsets made them shy away from it, the operators admitted. So the consumers had to buy handsets from either the authorised market or customs duty-paid shops.

More shocking to the distributors and dealers was that the tax had been revised with retrospective effect from March-end.

The dealers pointed out that Andhra Pradesh, Karnataka and even New Delhi were levying only 4 per cent ST.

Because of the variation in the taxation pattern, the landing cost in Tamil Nadu of original cellphones with warranty would even cross the MRP (Maximum Retail Price) prevalent in the other States.

The manufacturers were forced to work out a new MRP which would be definitely higher than what obtained in other States. In addition to a 20 per cent ST, the phones suffered a 2 per cent levy because of multi-point taxation. All these factors forced six manufacturers to suspend supply of phones to their dealers.

On the other hand, smuggled cellphones from the Gulf, Malaysia and Singapore entered the market without suffering any tax. As a result, the phones were available at a relatively cheap rate in the customs duty-paid shops, which took away 90-95 per cent market share. The consumers also ran the risk of buying used and refurbished phones from such a market.

In the absence of warranty and bill, the phones could not be insured against thefts or damage, pointed out Ramprakash, an insurance agent for mobile phones. Tamil Nadu accounted for sale of hardly 800 to 900 handsets a month, as against 1500 to 2500 sold in other States.

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