Nokia Says 8.5% Hike In Vat Hurts, Govt Move "regressive"

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http://www.livemint.com/2009/07/24190311/Nokia-says-85-hike-in-VAT-hu.html?h=B

Mumbai: Mobile handset maker Nokia India on Friday said its sales in Maharashtra have declined after an increase in VAT rate by 8.5% which led to a rise in the prices of handsets in the state.

Terming the government’s move as “regressive”, the Indian arm of the Finnish multinational said it could lead to higher grey imports in the country, thereby compromising national security.

“Industry-wide handset sales have fallen over 70% as of 23 July, compared to June. Every player has been affected and we, too, have felt the pain,” Nokia India head of marketing, Vineet Taneja, told reporters after launching two new models of the brand here.

He did not give details specific to the company.

In its Budget last month, Maharashtra hiked value added tax (VAT) on cellphones from 4% to 12.5% effective 1 July, triggering protest by traders and manufacturers.

Besides VAT, the state also levies 5.5% octroi and 5% customs duties on imported handsets.

“It is a regressive step and will give rise to a situation where the market will see (more) grey imports. And since these phones are untraceable, it is a compromise to the national security,” Taneja said.

Quoting figures released by the Indian Cellular Association (ICA), Taneja said handset sales and octroi collection have dipped by 75%.

“VAT collection, too, has gone down by 25%. They (government) think sales will remain constant (and) tax collections would be three times higher. This is reversing the success of the cellphone industry, the growth of which had been earlier stimulated by good policies,“ he said.

Trade bodies like the Maharashtra Mobile Trade Association have cautioned that this step would severely cripple growth of the organised mobile retail trade in the state.