Hyderabad: The ambiguity regarding VAT on sale of cellphones in Telangana state is likely to end soon with the Telangana state government mulling to roll back the tax from 14.5 per cent to 5 per cent as is the case in neighboring Andhra Pradesh, Tamil Nadu and Karnataka.
VAT on cellphone was made 5 per cent a month before TS and AP became separate states in June 2014. While AP continued with the same, the TS Commercial Taxes department reversed it to 14.5 per cent again.
However, this led to widespread confusion with a few shops charging 5 per cent like before while priority dealers charged 14.5 per cent. Also, it led to grey market operations where phones were sold without bills and at discounted prices.
Commercial Tax officials stated that they had noticed a few cases of sellers smuggling phones from Vijayawada and selling them at a higher price in Khammam and Nalgonda districts.
Mobile buyers try to avoid VAT
Enforcement teams had raided shops in Hyderabad and given notices to owners to pay 14.5 per cent VAT. The Mobile Merchants’ Association had argued that customers were not willing to buy phones if higher VAT was levied and hence they were issued bills with only 5 per cent VAT. The department served notices to shops to pay the full tax to the government after which the association approached the High Court.
According to officials of the department, the revenue generated from tax on cellphones is nearly Rs 250 crore annually. Higher VAT also meant people in urban areas preferred online shopping than buying from a local shop.
Most of the e-commerce sites charge 5 per cent VAT on mobiles. Discount offers are also a big factor in people giving a big thumbs-up for online shopping.
Officials said that people in urban areas and especially those who want to buy high-end phones prefer online shopping. Phones priced below Rs 7,000 are sold in big numbers in shops, especially where online delivery is a problem.
Mr Masiuddin, president of Mobile Merchants Association in Jagdish Market, housing over 300 shops, stated that every month the revenue from sale of mobiles and accessories was around Rs 6 crore.
He stated that online sale of phones had dented their business by 30 to 40 per cent, but it was mostly limited to Hyderabad. This issue was brought to the notice of the Chief Minister, who is learnt to be in favour of cuting the tax.
