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The government’s decision to increase excise duty benefits for domestic producers of mobile handsets is expected to give a fillip to electronics manufacturing. The move will favour companies with manufacturing bases in India such as Samsung and Micromax.
Excise duty structure for mobile handsets, including cellular phones, which was earlier 6 per cent with Cenvat credit, has now more than doubled to 12.5 per cent. Cenvat or Central Excise Value Added Tax is a credit balance that can be adjusted towards the excise duty payable.
“This will effectively result in imports being subjected to countervailing duty (or anti-subsidy duty) of about 12.5 per cent. The move will boost manufacturing of mobile phones and parts used in mobile handsets in India,” said Gautam Khattar, partner (indirect taxes) at Pricewaterhouse- Coopers.
According to a study by International Data Corporation (IDC), the overall mobile phone market stood at 64.3 million units in the fourth quarter of 2014, an 11 per cent over the third quarter. The smartphone market declined by 4 per cent compared with the sequential previous quarter.
“As a company with deep investments in India, Samsung sees this as a progressive Budget, one which provides an enabling business environment for foreign investment. It further motivates us to take our ‘Make in India’ story to the next level,” said Hyun Chil Hong, President and CEO at Samsung India Electronics. For the consumer, there would not be any immediate gains as the ratio of domestic manufacturers to importers is quite small. Further, the companies are unlikely to pass on the gains to consumers immediately.
“It’s definitely a windfall for us as there would be a difference of about 11.5 per cent. This, however, spells bad news for importers of completely build units,” said SN Rai, co-founder and director at Lava Mobile, which has plans to set up a manufacturing unit in India in this March.
VAT rationalisation neededAccording to Indian Cellular Association (ICA) President Pankaj Mohindroo, there needs to a rationalisation of value-added taxes across the country.
“The 11 per cent differential when added to high VAT rate of 15 per cent in major States will be very lucrative preposition for the grey market operators,” he said.
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