Phone companies cut production by up to 15% before GST

Mobile phone manufacturing companies have cut their local production by 10 to 15% this month so that they can avoid oversupply after the goods and service tax (GST) kicks in on July 1.

However, distributors are not in the favour of stocking up before they get adequate clarity on GST effects.

As per Industry executives, established manufacturers like Nokia, Micromax and Panasonic etc. have completed their GST registrations, but small traders, around 60% of whom may not have value-added tax (VAT) registrations, would like to be away from the GST net so that they can avoid being taxed.

"It's the fear of the unknown with everybody, whether it's a small retailer, distributor or a medium-sized company, because of which dealers are not picking (stock) and primary (production) has dropped about 15% across the board," Sunil Vachani, executive chairman of Dixon Technologies, which makes phones for Intex, Panasonic and Gionee told ET.

As per GST rules, a distributor will get full credit for CVD or excise duty if he has bought the phones directly from a manufacturer or an importer. However, in case the invoice documents are not available, the distributors will get 60% of the deemed credit of the Central GST liability of 6%.

"We have told the trade that any price differential will be borne by the company, so they are protected against the transition," said a Nokia spokesperson. However, distributors are still being cautious.

"No one wants to take the risk of taking excess inventory and sitting with it despite some brands assuring that price protection will be offered," said another executive.