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Auto components, consumer electronic sectors worried — Thai FTA: Favourable tax regime sought

Neha Kaushik

New Delhi , Dec. 25

THE domestic auto component and consumer electronics industry are on tenterhooks. Afraid of being swept off their feet by cheap imports from Thailand resulting from the Free Trade Agreement (FTA) that became operational from September, the two industries have called for a favourable tax regime that would ensure a level playing field and help them remain competitive.

While the Consumer Electronics and Television Manufacturers' Association (CETMA) in its pre-budget memorandum has called for a "special package" to help the industry integrate with the global economy, the Automotive Component Manufacturers' Association's (ACMA) memorandum has stressed on the need to have nil customs duty on all raw materials and inputs required to manufacture items included in the FTA.

CETMA has said that on account of being included in the early harvest scheme under the Thai FTA, the customs duty on products such as colour TVs, colour picture tubes, air-conditioners and refrigerators imported from Thailand have been reduced to 12.5 per cent with effect from September 1, 2004. This has resulted in the incidence of inverted duty for these products.

As an example, the association has pointed out that while a colour TV set can be imported from Thailand at 12.5 per cent duty, its inputs attract customs duty of 20 per cent. Furthermore, the customs duty on colour TV sets from Thailand would get reduced to 6.25 per cent on September 1, 2005 and nil on September 1, 2006.

"To remedy the situation the customs duties on inputs should not be higher than customs duty on finished products," CETMA has said.

It has also urged the implementation of a composite VAT to bring down the level of taxation on the industry. Industry officials point out that while the total incidence of taxation on a CTV in India is about 35 per cent, the VAT in Thailand is 7 per cent while in China it is 14 per cent. Market-watchers point out that both the consumer electronics and auto component industries have been rife with talk of big import orders being placed from Thailand.

According to an executive from the consumer electronics industry, there is talk of the Indian subsidiary of a Japanese electronics major having placed an order of 85,000 CTVs from its Thai facility in October 2004 alone.

However, the exact impact on Indian trade of the Thai FTA can only be assessed when the customs department releases data for the past few months next year.

ACMA, on the other hand, has stressed on the need to have a nil customs duty on all raw materials and inputs required to manufacture items included in FTAs.

"With the increasing globalisation of the Indian automotive industry, component manufacturers are facing cost pressures from the local assemblers since FTAs are being signed with India's trade partners.

"In this scenario, the Indian Government can play a critical enabling role by stimulating domestic demand by providing a level-playing field to domestic manufacturers. Boosting demand by helping stimulate growth will give the Indian auto component manufacturers the scale to compete with players from the low-cost countries'" the industry body said.

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