Behind Xiaomi's 560 million tax collection by India: Chinese mobile phone manufacturers monopolize the Indian mobile phone market

Xiaomi has suffered a series of declines in Hong Kong stocks in recent days.

On January 6, as of the "China Times" reporter's press release, Xiaomi's intraday share price of 17.66 Hong Kong dollars fell by 1.45%. On January 5, Xiaomi's stock price fell 3.45% after the opening of the market to close at HK$17.92.

One external reason affecting the performance of Xiaomi's capital markets is that the Indian Ministry of Finance announced on January 5 that it had recovered 653 million rupees (about 560 million yuan) of tax from Xiaomi Technology India Pte Ltd (Xiaomi Technology India Pvt. Xiaomi then responded to the "China Times" reporter that it will continue to communicate with the relevant departments in India, and said that Xiaomi adheres to legal and compliant operations around the world and abides by the relevant laws and regulations of the place of operation.

India is the world's largest smartphone market besides Chinese mainland. In this battlefield, although the "foreign monks" represented by Xiaomi occupy the mainstream of the market, it is not an easy task to "chant" in India.

Be tax-collected

Xiaomi's recovery of about $560 million in taxes stems from evidence gathered by DRI (India's Tax Intelligence Agency) during its investigation that neither Xiaomi India nor its contract manufacturers included the amount of royalties paid by Xiaomi India to Qualcomm and Beijing Xiaomi Software Co., Ltd. in the appraised value of its imported goods.

This was considered to be a way of evading customs duties by undervaluing them, in violation of section 14 of the Customs Act 1962 and the rules of customs valuation (determining the value of imported goods) in 2007.

According to the statement from the Ministry of Finance of India, Xiaomi India is engaged in the sale of MI brand mobile phones, and its mobile phones have two sources: direct imports by Xiaomi India, or imported mobile phone parts by a contract manufacturer of Xiaomi India and assembled in India.

For the Indian government to collect taxes, Xiaomi responded to the "China Times" reporter that the Indian authorities required Xiaomi to pay back the import tax related to the royalties between April 1, 2017 and June 30, 2020, which has nothing to do with Xiaomi's recent business, and the official statement is not the final result.

Xiaomi also believes that the root cause of the tax problem is that there are differences between the parties on the price determination of imported goods, "whether royalties, including patent royalties, should be included in the price of imported goods, which is a complex technical problem in various countries." ”

The tax of 560 million yuan is not much for Xiaomi. As of the end of September 2021, Xiaomi's cash and cash equivalents were 32.65 billion yuan, although 22.1 billion yuan less than at the end of last year, but the tax recovered was only less than 2%.

However, from the perspective of net profit, 560 million yuan of taxes accounted for 70% of Xiaomi's net profit of 790 million yuan in the third quarter of last year. It should be mentioned that Xiaomi's net profit margin in Q3 last year was only 1%, compared with 6.7% in the same period last year.

Another kind of pressure

The change in Xiaomi's performance in the third quarter of last year was quite affected by the lack of cores. According to Canalys data, Xiaomi's shipments of 43.9 million smartphones in the current period decreased by about 10 million units compared with the previous quarter. The 13.5% share in the third quarter of last year also caused Xiaomi to fall back one place, ranking third after Apple.

But this has not affected Xiaomi's performance in the Indian market. Xiaomi said in last year's Q3 earnings report that it maintained the first smartphone shipment in the Indian market for the 16th consecutive quarter.

Li Zegang, chief analyst of Omdia's mobile terminal market, told the China Times that in the third quarter of last year, Xiaomi's share in the Indian market exceeded 27%. Although Samsung is relatively tight, the market share gap between the two companies in Q3 last year is still 6-7 points. He estimates that Xiaomi mobile phones will have a shipment size of about 40 million units in the Indian market in 2021.

Not only Xiaomi, India has long become an important battlefield for Chinese mobile phone manufacturers. Canalys data shows that in the third quarter of last year, the top five mobile phone manufacturers in the Indian market accounted for nearly 90% of the share, of which 4 were from Chinese mainland. In addition to Xiaomi, OPPO, vivo, and realme are all on the list.

Behind this, Canalys statistics show that the Indian market will ship 145 million smartphones in 2020. Although the Chinese mainland smartphone market has more than 300 million shipments a year, what attracts domestic mobile phone manufacturers more is that compared with the mainland, which has entered a fierce stock market competition, the Indian smart phone market is far from saturated. Moreover, the thousand-yuan machine that does not have "lethality" in the mainland market is the main theme of the Indian market.

But in a blue ocean, domestic mobile phone manufacturers need to face another kind of pressure.

Li Zegang analyzed the "China Times" reporter that taxation is a way for India to stimulate the local economy, through the collection of high tariffs on the whole machine and parts, the purpose is to let foreign companies to build factories in India, "the Indian market consumption is low, the gross profit is low, the direct import of the whole machine is too expensive, can only be through the import of kits, semi-loose parts to India local assembly." In addition, according to the reporter's understanding, in addition to OPPO, vivo and other mobile phone manufacturers directly built factories in India, upstream supply chain companies such as Helitai and Huaxing have also built module factories in India.

Another pressure on them is the possible change in the market landscape: in the third quarter of last year, shipments of the top five manufacturers in the Indian market all fell year-on-year, with a minimum of 7% and a maximum of 14%. But in the same period, the mobile phone manufacturers that were classified as "others", although they only had a market share of 10%, increased by more than double the year-on-year.