A recent report by The Economic Times exposes a concerning trend in India’s online smartphone market – a significant portion of phones sold online are ending up in the grey market. Trade bodies allege that as much as 80% of online-exclusive smartphones are being diverted by aggregators who exploit loopholes to buy them in bulk and resell them at marked-up prices.
Tax Losses and Counterfeit Risks: The Dark Side of India’s Online Smartphone Market
These aggregators, acting as wholesalers, use hundreds of user accounts to bypass online retailers’ purchase limitations and acquire popular models in bulk. This creates artificial stock shortages on e-commerce platforms, frustrating legitimate customers. The aggregators then sell these phones to retailers across states at inflated prices, who can further exploit the limited online availability to justify even higher markups.
This diversion has a two-fold negative impact. Firstly, it leads to government revenue loss due to tax evasion. Aggregators often purchase these phones using business accounts, allowing them to claim Input Tax Credit (ITC) on the 18% GST paid. However, when they resell these phones at a higher price through unofficial channels, the additional profit escapes GST taxation. Industry estimates suggest this could be a potential $600 million GST rebate fraud.
Secondly, consumers are left vulnerable. By purchasing from unauthorized sellers, they risk receiving counterfeit products or facing warranty issues down the line. Additionally, they miss out on exclusive deals and offers often available through authorized online retailers.
Smartphone brands like Poco, OnePlus, iQOO, and Realme are reportedly the most affected by this grey market activity. These brands are taking steps to curb the practice by issuing warnings to retailers and requiring them to sign undertakings promising to sell only through authorized channels. Additionally, some brands are appointing distributors to cater specifically to offline retailers.
The smartphone industry needs a multi-pronged approach to address this issue. E-commerce platforms need to strengthen their systems to detect and prevent bulk purchases using multiple accounts. Additionally, stricter regulations and enforcement are needed to deter tax evasion practices by aggregators. Finally, consumer awareness campaigns are crucial to educate buyers about the risks associated with purchasing from unauthorized sellers.
This is a developing story, and it remains to be seen how effectively these measures can curb the grey market activity in India’s online smartphone market.
(Source)
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