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Policy Update
 
Buckling under handset manufacturers' pressure, Government reverses duties, hitting components (Relief for populated PCBs, 4% import duty imposed): Buckling under pressure from handset manufacturers the government has put through a series of notifications reversing duties adding up to around 29.44% on import of batteries used in mobile phones, chargers, wired headsets and speakers imposed in the Budget. These components, which comprise 15-20% of the cost of a mid-size phone, can now once again be imported at zero per cent duty. This will also come as a big relief for global manufacturers such as Samsung.

A section of industry observers were puzzled at the reversal in the government's stance as the duties on these components were added in this year's Budget to encourage domestic manufacturing and value addition. It has been government's agenda to promote big-time domestic manufacturing of electronic goods and electronic components. Sources said that handset manufacturers protested stating that there wasn't enough domestic manufacturing happening of the products that attracted the levy so the increased duty would lead to an increase in the prices of their products. The levy of the duties in the Budget came as a surprise for the industry as it was not prepared for it and needed some time to prepare itself. However, another section of the industry said that by reversing the rates, the government has killed the scope for any domestic manufacturing to happen in these products.

"It seems that the government has given time to the industry to prepare itself. It is not that it has removed the duty for all time to come but may bring it back in, say, six months' to a year's time," Sanjay Garg, partner, indirect tax, KPMG said.

The government also imposed a 4% import duty on populated printed circuit boards (PCBs) for customer premise equipment if imported for broadband modems, routers, set-top boxes for TV and DTH, CCTV cameras, DVRs and NVRs, while removing the 2% levy for mobile phones. The idea is to encourage domestic value addition. Earlier, the duty on these products was zero. If these products are manufactured domestically, there will be an excise duty of 4% while components can be imported without any duties. Populated PCBs or semi-knocked down kits are basically assembled products that are disassembled and then imported and reassembled and so do not lead to any value addition.

Prior to Budget 2016-17, import of almost all mobile handset accessories did not attract any import duty while domestic manufacturing (assembling) was subjected to a concessional excise duty of 1% without the facility of Cenvat credit. Since this was not leading to shifting of core manufacturing activities to India by foreign players (the value-addition in assembling was less than 10%), the Budget, while retaining the 1% excise duty on domestic manufacturing, imposed import duties on chargers, adapters, batteries, wired headsets and speakers, taking the cumulative tax incidence (including basic customs duty, countervailing duty of 12.5% and special additional duty of 4%) on these products to 27-28%. Finished handsets attract a countervailing duty at 12.5%, with 30% abatement, and the tax incidence is high enough to give domestic manufacturing an edge.
(FE, May 07, 2016)

 
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