Here’s why GST means smaller discounts on Apple iPhones online

The difference between online and offline prices of iPhones has narrowed to Rs 1,500-Rs 2,000 from Rs 5,000-Rs 8,000, as goods and services tax (GST) has taken away a cushion that had allowed sellers on e-commerce platforms to offer discount.
VAT has now been merged into GST, the indirect tax regime that came into effect on July 1. Since the GST rate is uniform across the country, they cannot take benefit of the tax arbitrage that VAT offered.
Online sellers can now, at most, pass on the savings in distribution cost, according to the distributors, as they are resorting to a uniform margin across sales channels with no big price difference, the executives said.
Apple India did not respond until press time on Thursday to an email seeking comment. Prices of iPhones on Amazon and Flipkart have already increased this week, reducing the gap with offline trade. Apple used to bill iPhones for online sellers mostly from southern markets such as Hyderabad and Bengaluru, where the VAT was 5%.
Since the average VAT in the country was 12-14%, this allowed online sellers to pass on the gain to consumers. The same strategy was adopted by a few other, mostly online-exclusive, brands as well. For them, too, the prices will go up unless they absorb the higher tax incidence to remain competitive, as Asus did recently. Since iPhone being higher priced, the price difference was more pronounced.
As a result, around 50-55% of the Apple phones sold in India is through e-commerce sites, compared with the smartphone industry average of 30%. Spice Group-owned retail chain Hotspot executive director Subhasish Mohanty said he expects the offline business of iPhone to grow faster now, especially in modern trade, since the price difference will disappear and as consumer expects certain experience with a brand like Apple which is possible only with organised retail.
“Our iPhone business had fallen by almost 35% due to online discounting. This will now recover fully and we should be in the path to growth,” said Mohanty. The chain has over 200 multi-brand cellphone stores. A senior executive with a leading cellphone store said Apple wants to build its relationship with general and modern trade and expand the number of authorised resellers. It is partnering small cellphone store owners to set up exclusive stores of 450-500 sq ft and has already set up 200 of them.
“It wants to build over 1,500 such outlets in the next 18 months to cement its offline presence,” he said. Apple distributors said they may pass on additional discounts to online sellers during sale events, which typically take place before festive seasons and once every quarter, since the sellers then buy in huge numbers.
“Such discount may bring down online prices of iPhone, but those will be a temporary event and not year-long,” one of them said. Apple India grew revenue in 2015-16 by 54% to Rs 9,997 crore, overtaking home grown Micromax to become the second largest smartphone company in the country by revenue. It is yet to file results for 2016-17.