In control

Calcutta, April 10: The implementation of value-added tax (VAT) is expected to sound the death knell for the grey market in the cellular handset industry.

The domestic handset industry is estimated at close to Rs 10,000 crore annually, of which the grey component is around 10 per cent and parallel imports constitute 15 per cent. Handsets sold through the grey and parallel route together account for Rs 150 crore to Rs 200 crore every month.

Indian Cellular Association (ICA) president Pankaj Mohindroo feels that with all dealers and traders coming under the tax net, the grey market will suffer severely and finally be wiped out.

The proposed phasing out of the central sales tax by April 2007 for an integrated goods and services tax (GST) regime will also result in a uniform tax structure for cellphones.

Explaining the reason the parallel market can offer handsets at almost 10 per cent lower than retail prices, Mohindroo said, ?Distribution, especially in remote locations in the country, is a problem. Unauthorised channels take advantage of this and avoid the distribution margins. They also do not pay octroi, sales tax and turnover tax. Since there is no warranty on these handsets, they also save on that account.?

The apex body has initiated an awareness drive among dealers on the tax to be paid, refund to be claimed and the final cost to the customer.

It is, however, not clear as to how VAT will affect the fortunes of the estimated Rs 1500-crore cellular components and accessories industry, 95 per cent of which is ruled by the grey market. This amounts to a loss of around Rs 2300 crore annually.

The duty structure varies between 22.58 per cent on products like radio trunking terminals and 40.38 per cent for battery packs. The 10.2 per cent service tax is also added to these duties.

?The duty structure for components and accessories is currently not very clear and it will be difficult to say if the grey in this segment will be lowered,? said Mohindroo.