Phone Makers Seek GST Cut to 5% to Counter Demand Slump and Skyrocketing Chip Costs

New Delhi: In a major push to revitalize consumer electronics adoption and safeguard industrial momentum, domestic and global mobile phone manufacturers have urged the Union Government to reduce the Goods and Services Tax (GST) on handsets to 5% from the prevailing 18%. The industry flagged softening domestic consumption, persistent inflationary headwinds, and escalating global memory-chip prices as critical threats to sustained growth.

Representing premier global brands, original equipment manufacturers (OEMs), and component suppliers, the Indian Cellular and Electronics Association (ICEA) formally submitted the representation to the Union Finance Minister, emphasizing that timely fiscal interventions are paramount to sustaining India’s hard-won manufacturing prowess.

Disconnect Between Manufacturing Scale and Domestic Uptake

The industry body highlighted a stark dichotomy between supply-side achievements and domestic retail absorption:

• Global Manufacturing Hub: Under the aegis of the Production Linked Incentive (PLI) scheme and progressive indigenisation drives, India has cemented its position as the world’s second-largest mobile phone manufacturer by volume.
• Weakening Retail Demand: Despite formidable factory output, aggregate handset consumption across tier-2, tier-3, and rural markets has witnessed a noticeable deceleration over recent quarters.
• Warning to Manufacturing Trajectory: In his communication to the Finance Ministry, ICEA Chairman Pankaj Mohindroo warned that stagnant or declining domestic uptake could throttle capacity expansion, scale efficiency, and upstream supply-chain investments.

Rising Component Costs and the Grey Market Threat

The demand for tax rationalisation is underpinned by structural supply-chain disruptions and illicit market competition:

1. Memory-Chip Inflation: Semiconductor supply adjustments and soaring costs for critical inputs—predominantly memory chips—have exerted sharp upward pressure on Bill of Materials (BOM) costs, leaving manufacturers with little margin to absorb taxes.
2. Component Tax Rationalisation: In addition to finished handsets, the industry has pressed for corresponding tax adjustments on essential mobile phone modules and spare components to prevent inverted duty structures.
3. Curating Grey-Market Exploitation: The elevated 18% GST rate creates an arbitrary price disparity that encourages unofficial, unbilled “grey market” transactions. Lowering the levy to 5% would eliminate the tax-arbitrage incentive, safeguarding consumer safety and formal tax compliance while channeling revenue back to the exchequer through broader volumes.

Industry leaders remain optimistic that lowering the tax burden will democratize smartphone upgrades, expedite digital literacy transitions across emerging demographics, and insulate the manufacturing ecosystem against international macro headwinds.

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