PCs to become dearer as exemptions on components go

Our Bureau New Delhi | Updated on March 01, 2011


The Union Budget has withdrawn excise-duty exemptions on a slew of hardware items including computer microprocessors, floppy disc drives, hard disc drives, CD-ROM drives, DVD drives/writers, flash memory and combo drives — a move that could push up computer prices marginally for some players. These IT items/products will now attract a concessional excise duty of five per cent.

With most players still studying the fine print of the Budget document, a clear situation is likely to emerge only in the coming days, but tax experts say since most of the large manufacturers are in excise-free zones, this additional cost could push-up computer prices a tad.

“Computer manufacturers in non-excise-free zones may not be impacted much as they will take CENVAT credit, but for those manufacturers who are operating in excise-free zones, it means an increase in cost of inputs, and therefore possibly an increase in price for end-consumers,” Mr Srinath S., Director – Indirect Tax, KPMG, said.

Apart from this, local manufacturing of printers — inkjets and laser printers — is set to get a boost, he says. With regard to printers, there is no change in the duty rates for the full product. But the parts of inkjet and laser-jet printers, which earlier attracted CVD of 10 per cent and Special Additional Duty (SAD) of four per cent, will now attract only five per cent CVD and no SAD.

“This will provide an impetus for players to get into printer manufacturing in India, especially for companies operating from excise free zones. Also, it will tilt the scales in favour of printer manufacturing versus import of the full product,” Mr Srinath opined.

When asked about the impact of withdrawal of excise exemption (on microprocessors and other items) on final PC prices, Mr Ajai Chowdhry, Chairman of HCL Infosystems, said, “It is too early to talk about the quantum of price increase on the end product (computer)…we are still going through the fine print. But yes, it will result in a MODVAT overflow, and it will result in some price increase for PCs. We have been strongly advocating manufacturing in the country, and this move will actually make it more expensive and hence counter-productive.”

Mr Chowdhry also expressed disappointment that the Budget did not have much for hardware manufacturers. “There was no mention of an electronic manufacturing policy, despite the wide expectation in the industry. We would have liked to see some directional statement on this front, if not a policy,” he said.

Interestingly, the Budget seems to have made clearer the issue of imported packaged software (sold on media such as CDs) not intended for retail sale. In such cases, it has been proposed that the CVD will be applicable on the value of the media and service tax on value of the IP (right to use). Since December 2010, these were subject to both CVD and service tax on full value of the software (media and IP). The notification seeks to avoid such double taxation, and is expected to benefit enterprise users who import such software directly.

Published on March 01, 2011

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