Mobile phones in West Bengal will become more expensive than any other part of the country, thanks to the state government increasing the state value added tax on the product from 4 per cent to 12.5 per cent.

The increase in prices, to be effective from September 8, is expected to give a major fillip to the grey market in the state.

In the wake of the government move, consumers in West Bengal will need to spend over Rs 2,500 more for the 8GB Apple iPhone which currently costs Rs 31,000.

For a mid-level phone with a price tag of around Rs 8,300, the buyers will have to pay about Rs 700 extra, while for an entry-level handset, which costs about Rs 1,500, they will have to fork out around Rs 125 more.

As much as 6-7 million mobile phones are sold in West Bengal annually, and it will be the only state with a state-VAT higher than 4 per cent.

"The move will not lead to extra revenue for the state as higher price will encourage both the grey market and customers to buy phones from other states. Also, half the 10,000-odd employees who work in the industry will lose their job," said a senior executive of the Indian Cellular Association, which represents mobile phone manufacturers.

In 2001, the state government earned Rs 2 crore in terms of revenue from taxes imposed on mobile phones. In 2007-08, with prices in the official market falling and grey market getting adversely impacted, it earned taxes in excess of Rs 70 crore from mobile phone sales.

The association says the government's decision to increase the state value added tax would reduce the total collections by half.

"The prices of the products will definitely go up, and it is difficult to predict how the market or the consumers will react to this tax increase since it is not a price raise laid down by a company," said Sudhin Mathur, general manager, Sony Ericsson.

"However, considering that the rest of the states levy about 4 per cent tax, the retailers might be encouraged to get phones from other parts of the country," he added.