For consumers used to buying smartphones online at much cheaper rates than those prevailing in brick and mortar retail stores, the party is somewhat over. Online prices would still be lesser than retail stores but the gap has shrunk post-July 1 due to the roll out of the goods and services tax (GST) which has subsumed all the local levies like VAT etc. For instance, prior to July 1 iPhone 6 (32(GB) on Amazon was priced at Rs 26,000 against Rs 29,500 in retail stores in Delhi. Post July 1 the price on Amazon has gone up to Rs 27,300, while the same in retail stores continues to be at Rs 29,500.
The shrinkage in the gap is because GST rate for mobile phones is uniform 12% while earlier the VAT rates varied across states — from a low of 5% in Karnataka and Tamil Nadu to a high of 14% in states like Delhi, Uttar Pradesh, Rajasthan, and Gujarat.
Taking advantage of this variation, online players used to source phones from states having lower VAT like Karnataka and Tamil Nadu and supply to consumers in Delhi and other states where the VAT was higher. According to Bipin Sapra, Indirect Tax Partner at Ernst & Young, the tax arbitrage for e-commerce companies against offline stores has gone away with the implementation of GST.
Tarun Pathak of Counterpoint Technologies pointed out that in near-term the prices of mobile phones may rise in states like Karnataka and Tamil Nadu where earlier the VAT rates were lower than GST rate of 12% as well as those sold by online firms. However, he said that as GST settles leading to cheaper movement of goods inter-state the prices will come down.